Looking for a safety net for your company for 2022? Act on EIDL Funding Before the End of the Year

As the new year approaches, the future of the Build Back Better Act (BBBA) – and the strength of the economic recovery – remains uncertain. One thing that is not uncertain when it comes to your business is the approaching deadline to apply for funding for COVID-19 Economic Injury Disaster Loan (EIDL), some of which are non-refundable.

The US Small Business Administration (SBA) expanded eligibility in September 2021. While you may not have previously qualified or required EIDL funding, you may want to reconsider in light of yet another wave of COVID infections. But you have to act fast, because the application deadline is December 31, 2021.

Shaky economic ground ahead?

sen. Joe Manchin (D-WV) released a statement on Dec. 19 announcing that he “cannot vote to advance” on the BBBA. The $2.1 billion bill passed in the US House of Representatives includes numerous provisions related to health care, energy initiatives, immigration, education, social programs and taxes.

Democrats are missing the votes to pass the proposed legislation in the Senate without Manchin’s support. Still, Senate Leader Chuck Schumer (D-NY) indicated on Dec. 20 that he nevertheless plans to vote on the bill in early 2022. Schumer’s announcement came hours after Goldman Sachs lowered its forecasts for US economic growth in 2022 based on Manchin’s statement.

Types of EIDL help available

The COVID-19 EIDL program is designed to provide low-interest, fixed-rate long-term loans to provide small businesses (including sole proprietors and independent contractors) with the working capital they need to cope with the effects of the pandemic. Three types of financing are available:

loans. This form of financing has a term of 30 years and a fixed interest rate of 3.75%. The proceeds can be used for all normal operating expenses, including payroll, rent or mortgage, utilities and other ordinary operating expenses. Since the recent program expansion (see below), funds can also be used to pay or prepay corporate debt incurred at any time, including after filing, and regularly scheduled payments of federal debt.

Targeted claims. Companies located in low-income communities, have no more than 300 employees, and have experienced a drop in sales of more than 30% may qualify for a targeted advance of up to $10,000. These advances do not have to be repaid.

Additional targeted claims. Businesses in low-income communities that have no more than 10 employees and saw more than a 50% drop in revenue may be eligible for an additional $5,000. Additional advances do not have to be repaid either.

The recent expansion

The SBA has made several changes to make it easier for small businesses to access the COVID-19 EIDL loans. Among others, the SBA:

• Comprehensive eligibility of organizations with no more than 500 employees (including affiliates) for companies in the hardest-hit sectors with no more than 500 employees by physical location, as long as the company (with affiliates) does not have more than 20 branches,
• Increased the maximum loan amount from $500,000 to $2 million,
• the payment deferral period for all loans extended to two years from the date the loan was granted (interest will accrue during that period and principal and interest must be paid over the remaining 28 years of the loan’s term), and
• Simplified connection requirements.

The SBA has also limited entities that are part of a single corporate group to a combined total of no more than $10 million in COVID-19 EIDL loans.

Additional eligibility requirements

Applicants must be physically located in the United States or a designated area and have incurred working capital losses as a result of the COVID-19 pandemic. In addition, the companies must have been in operation on or before January 31, 2020.

Businesses (other than sole proprietorships) must have a valid tax identification number. Any owner, member, partner or shareholder of 20% or more must be a U.S. citizen, citizen, or qualified alien with a valid Social Security Number.

For loans of $500,000 or less, you must have a credit score of at least 570. For larger loans, the credit score must be at least 625. Depending on the amount of the loan, personal guarantee and collateral requirements may also apply.

The approaching deadline

The SBA will accept applications for loans and targeted advances until December 31, 2021. It will continue to process applications after that date, until funds are exhausted. While the SBA previously advised companies seeking additional targeted advances to submit applications by December 10, 2021, it later announced it will accept applications until the end of the year. However, it cannot process applications after the deadline, so applications submitted near the deadline may not be processed.

Keep in mind that borrowers can apply for raises up to two years after the loan is made or until program funds are exhausted, up to their maximum amount eligible for a loan. In addition, the SBA will accept requests for reconsideration and appeals received before December 31, 2021 if received in a timely manner. For reconsideration, this means within six months of the date on which the application was rejected. Objections must be received within 30 days of the date the reconsideration was rejected.

don’t dawdle

You can apply for COVID-19 EIDL help online, but the clock is ticking. We can help you determine if you should go this route and help you gather the necessary documentation.

thanks to Thomson Reuters for using this content.