- CGA Law Firm's John Robert Wilson explains how substantial policy changes to the COVID-19 Economic Injury Disaster Loan program could affect your small business.
Our mission-driven SBA team has been working around the clock. . . to ensure every entrepreneur who needs help gets the capital needed to reopen, recover and rebuild.”Administrator Isabella Guzman of the U.S. Small Business Administration
The COVID-19 pandemic has affected each and every one of us—but perhaps none more so than small businesses owners.
Prior to the pandemic, Pennsylvania was the proud home of over one million small businesses. However, a study from the U.S. Bureau of Labor Statistics reported that Pennsylvania had the second-highest percentage of businesses closed due to the pandemic. Despite these closures, the percentage of Pennsylvania businesses that received a loan or grant was less than 21 other states.
Another study by the Society for Human Resource Management highlights how COVID-19 devastated small businesses in particular. This study reports that 42% of small business owners had to close their business as a result of the pandemic and that 62% of small businesses experienced a decrease in revenue.
During the last year and a half, the federal government has taken steps to produce a more hospitable environment for small businesses and to lighten the load on small business owners.
The U.S. Small Business Administration (“SBA”) spearheaded a program called the COVID-19 Economic Injury Disaster Loan (“EIDL”). The EIDL program is designed to provide accessible and borrow-friendly capital to small businesses. These funds can be used for normal operating expenses, payroll, purchasing equipment, and paying off debt.
Changes to the EIDL program
On September 8, 2021, the SBA adopted a number of substantial policy changes to the EIDL program that could affect your small business. These fundamental changes include:
1. Increased COVID-19 EIDL Cap: The SBA has made higher loan amounts available to small businesses by increasing the cap from $500,000 to 2 million dollars. The interest rates for businesses (3.75%) and non-profit organizations (2.75%) will remain the same for loans that exceed $500,000. The minimum credit score for obtaining an EIDL loan over $500,000 is 625, as opposed to a loan that is less than or equal to $500,000 (credit score of 570).
2. Expanded Eligible Use of Funds: The SBA has also increased the flexibility of these funds, by permitting these funds to be applied not only to payment, but prepayment, of commercial debt, as well as regularly scheduled payments of federal debt.
3. Deferred Payment Period: The SBA will provide a two-year deferment from the time of the loan’s origination for all loans. Furthermore, existing loans with less than a 24-month deferment will be adjusted.
4. Simplified Affiliation Requirements: The SBA simplified the affiliation requirements to mean a business that you control or have 50% or more ownership of, modeling the requirements of the Restaurant Revitalization Fund.
The SBA stands ready to review and approve EIDL applications of small businesses. If COVID-19 has negatively affected your small business and you are in need of low-interest financing, see if your business meets the eligibility requirements of the EIDL program.
The SBA has streamlined its EIDL application process so that small businesses can complete an application without needing to outsource this task. However, there is a December 31, 2021, deadline in order to be approved, so consider whether an EIDL loan is right for your small business today.
The SBA has already distributed over 6.62 billion dollars to small businesses in Pennsylvania, and your business could be next.
This article was written by John Robert Wilson, an attorney with CGA Law Firm. He provides legal services to Business, Litigation, Bankruptcy, Government, and Education Law clients.