What is the Economic Injury Disaster Loan Grant and what does it mean for small business?

On December 22, 2020 Congress passed the stimulus bill which includes new EIDL grants, new Paycheck Protection Program loans and other small business relief. Read more about that legislation and apply for a new PPP loan here.

Part of the Economic Injury Disaster Loan (EIDL) is what many are calling a grant up to $10,000 for those who submit an application for disaster assistance. It works more like an advance that does not require repayment—whether or not your loan application is approved. In other words, if you meet the qualification criteria to apply for an EIDL loan, submit an application to the SBA, and you will receive up to a $10,000 advance within three business days—that does not need to be repaid.

What is the qualification criteria to apply for an EIDL loan?

The criteria for qualifying is somewhat relaxed when compared to a typical SBA loan and may even see some changes. Also, unlike a typical SBA loan, or even the Paycheck Protection Loans (PPL) that are on the way, the application is going directly to the SBA rather than a bank or other lender. The qualification criteria will look something like this:

• Businesses with fewer than 500 employees (with some exceptions)
• Businesses that were in operation before January 30, 2020 (this date is different from what is required in the PPL—which is February 15, 2020)
• Businesses that meet the SBA’s industry-based size standard requirements for applicable NAICS code,which are based either on number of employees or annual receipts (you can see if your business credit reports list your NAICS code by pulling your business credit reports for free on Nav)
• Not-for-profits (except those receiving Medicaid funds)
• Veterans organizations

You should also be prepared with:

• Your 2019 business tax return if filed, or your 2019 year-end profit and loss statement, along with your balance sheet and the most recently filed business tax return
• 2020 year-to-date profit and loss statement

If you need help with your application, you can talk to one of our Lending and Credit Specialists who can help you complete your application free of charge. You can also contact the SBA directly by calling 1-800-659-2955 or via email at disastercustomerservice@sba.gov, but to apply for the EIDL, the SBA is suggesting you make your application via the SBA’s online portal.

If you’ve already applied for the EDIL and weren’t asked for your bank account information, the SBA is suggesting that you submit another application—particularly if you are looking for the advance. Your bank information will allow them to directly deposit the advance in your business bank account.

NOTE: If you applied for an EDIL last week, there was a data glitch and some small business’ information was compromised. Because you can’t freeze your business credit report like you can with your personal information, we are recommending that you immediately begin monitoring both your personal credit and your business credit. You can monitor your credit for free at Nav. If you’d like to know more about the data breach, click HERE.

What does the EIDL Grant mean for small businesses?

The Economic Injury Disaster Loans generally are attractive for a number of reasons, including:

• Loans up to $2 million are available 
• The disaster loans come with low fixed interest rates of 3.75% or 2.75% for non-profits
• The repayment term is up to 30 years, reducing the monthly cash flow burden
• There are no prepayment penalties
• Although interest will accrue, payments may be deferred for six months
• The money is available in all 50 states
• The time-in-business requirement has been waived, provided your business was operational on January 31, 2020.

The grant associated with the EDIL makes it possible for any business that meets the minimum requirements to apply, able to receive up to $10,000 almost immediately (the SBA is shooting for three days) that they can use the funds without the requirement to repay the loan. 

These working capital loans (including the grant) may be used only to pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. The loans are not intended to replace lost sales or profits or to pay for expansion. Funds cannot be used to pay down long-term debt. They also cannot be used to consolidate debt.

What if I have less-than-perfect credit?

Although the qualifying criteria for making an application may be somewhat relaxed, there are some credit issues that could disqualify you:

• Your are more than sixty (60) days delinquent on child support obligations
• You have judgements against you for federal debts and you have not worked out a satisfactory repayment plan
• You have federal tax liendres of more than $10,000 (you could still qualify, but you must provide a satisfactory explanation and be able to repay the tax debt—it’s recommended you work out a payment plan with the IRS as soon as possible

Fortunately, the SBA is not requiring exceptional credit to apply for these loans, but you should be prepared to include an explanation for your current situation with your application. Guidelines for those who process SBA Disaster Loan applications state:

“For disaster lending purposes, satisfactory credit history is defined as a history that generally shows payments to creditors as agreed unless otherwise justified… 

Generally, a history that consists of minor, isolated instances of adverse credit or late payments is acceptable. Major instances of adverse credit such as unpaid judgments, repossessions, previous foreclosures, charge-offs, and unpaid collections can be overcome provided: 

1. 1. The applicant explains the lapse; and 
   2. The applicant has other accounts with “as agreed” payment records. 

For purposes of evaluating adverse information found on an applicant’s (credit reports), the information should be considered within the totality of circumstances; for example, financial difficulties caused by one-time situations such as divorce, job loss, serious medical illness, etc.

For purposes of disaster lending, medical collections are not considered adverse information.

Non-medical collections or charged off accounts with an aggregate of $10,000 or less and foreclosures or deed-in lieu of foreclosures which occurred more than two years from the date of the loan application are all considered an acceptable credit risk and do not require any additional justification.”

That being said, there is no guarantee that you will be approved for the loan if you have a poor credit history. Fortunately, the grant of up to $10,000, associated with the loan does not need to be repaid even if your loan application is rejected.

The Economic Injury Disaster Loan Grant: The bottom line?

If you meet the minimum requirements to apply for a disaster loan, the grant will be available to you whether or not your loan application is approved. With that in mind, if you need access to capital quickly, and don’t need a larger loan amount, this may be a good option for you.

The Paycheck Protection loan is another option to consider. It’s based upon the 7(a) loan program. A good place to start is looking at the Paycheck Protection Loan Calculator to help you determine the loan amount you should be looking at. You can also visit with one of our Credit and Lending Specialists and they can help you make an informed decision about which program will best suit your needs.

Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not solely rely on this for your financial decisions. We encourage you to consult with your lawyers, CPAs, and Financial Advisors. To review your real-time funding options with one of Nav’s lending experts, please contact us.