Devised to offer financial aid to businesses, experiencing a loss of revenue due to the COVID-19 pandemic, the Economic Injury Disaster Loans (EIDLs) were the only form of SBA assistance not limited to small businesses. Made available to the business owners on 30th March 2020, these were the intrinsic form of Federal assistance, designed to help entrepreneurs cope with the economic catastrophe. Originally, these loans were meant to back businesses that got seriously affected by natural disasters like tornadoes, wildfires or floods, but, the then president of the USA, Donald Trump, declared COVID-19 a nationwide emergency on March 13th and soon after made EIDLs available to the finance-seeking small business owners across the country.

The advance program provided around $20 billion, as emergency funding, to small businesses, independent contractors, non-profits, agricultural businesses and many more. However, on 11th July 2020, the U.S. Small Business Administration(SBA) declared that it would no longer be granting advances under the EIDL program, and on 1st January 2022, SBA stopped accepting new COVID EIDL applications, but continued processing the applications submitted before 31st December 2021. However, applications for the smaller Supplemental Targeted Advance were neither accepted nor processed after December 31, 2021. Initially, the COVID-19 EIDL program was scheduled to get discontinued by December 31, 2020, but got extended through December 331, 2021, with the passage of the Consolidated Appropriations Act (CAA), 2021. CAA came up with a new Targeted EIDL Advance, which was only available to EIDL applicants based out of SBA-identified low-income areas.

An EIDL could provide up to $2 million, depending on the amount of economic damage the business had sustained. It helped the borrowers to meet various financial obligations that they could have easily met if the pandemic didn’t break out. Also, it permitted the business owners to maintain sufficient working capital to carry out all the necessary business operations, during those dark days. However, EIDLs could never replace lost revenues.

Eligibility For EIDL

Small businesses or private non-profit organizations that have suffered an economic injury and are located in a disaster-declared province, were eligible to apply for EIDLs. To get approval on the application, a business is required to compulsorily meet the SBA-defined size standards of a small business and be located in the United States or a U.S. territory. The normal EIDL application process usually took not more than a couple of hours.

SBA-Defined Definition Standards For Small Business:

  • The business was required to operate primarily within the U.S. and significantly contribute to the U.S. economy by paying taxes to the government and using American materials or labor.
  • The business needed to be independently owned and operated.
  • The business should not be dominant in its field, on a national basis.

SBA-Defined Size Standards For Small Business:

  • A business was considered a small business only when it comprised 500 or less employees. However, in the case of certain industries, SBA accepted companies with a higher number of employees under the category of small businesses.

SBA-Defined Location and Business Type Standards For Small Business:

  • Businesses based out of any of the 50 U.S. states; Washington, D.C.; and U.S. territories, were eligible to apply for EIDL. It was also available to proprietorships, independent contractors, and self-employed persons.

Loan Terms For EIDL Programs

In the case of EIDLS, no upfront fees or early payment penalties were charged by SBA. The repayment terms were determined based on the borrower’s ability to repay the loan. The loan length could go up to 30 years, the interest rate never exceeded 4% and the maximum disbursed loan amount was $2.0 million. But, the payment frequency and prepayment penalties were the variable factors.

EIDL Approval Conditions

One could borrow up to $200,000 without the requirement of a personal guarantee. The tax returns of the first year were not needed and the approval was given based on the credit score. Besides, collateral was not requisite in the case of loans of $25,000 or a lesser amount. But, for loans above $25,000, a general security interest was often applied to the business assets. Also, the SBA reviewed the tax records of the business, before approving an application.

EIDL Usage Restrictions

There were certain purposes, which EIDL couldn’t be used for.
Those were : 

  1. Payment of any dividends or bonuses. 
  2. Disbursements to owners, partners, officers, directors, or stockholders, except when directly related to the performance of services.
  3. Repayment of stockholder/principal loans, except when the funds were injected on an interim basis as a result of the disaster. 
  4. Expansion of facilities or acquisition of fixed assets. 
  5. Repair or replacement of physical damages. 
  6. Refinancing long-term debt.
  7. Regular installment payments or repay loans provided, or owned by another Federal agency (including SBA) or a Small Business Investment Company licensed under the Small Business Investment Act. Federal Deposit Insurance Corporation (FDIC) is not considered a Federal agency for this purpose. 
  8. Payment of any part of direct Federal debt, (including SBA loans) except IRS obligations.