Everything You Need To Know About The EIDL Program Updates

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On September 8th, the SBA announced massive changes to the COVID-19 Economic Injury Disaster Loans (EIDL) Program. The major changes include:

  • Increasing the COVID-19 EIDL cap from $500,000 to $2 million
    • A borrower can request more funding, up to $2million, even if they have already received COVID-19 EIDL
    • The maximum amount of $2 million includes any funds that the borrower has already received
  • Implementation of a 2-year deferred payment period
    • The original deferred payment period was 18 months
    • Without any action on the part of the borrower, the SBA will extend the deferment period of all existing COVID EIDL loans to 24 months
  • The first 30 days after the SBA announced changes are exclusively for processing loans of $500,000 or less
  • The SBA will begin to approve loans greater than $500,000 on October 8, 2021
  • The simplification of affiliation requirements to mimic those of the Restaurant Revitalization Fund

Loan qualifications changes that may impact your restaurant

The changes announced by the SBA expand COVID-19 EIDL eligibility. Now, businesses in the hardest-hit industries are qualified. As such, restaurants are listed as one of the hardest-hit industries. Restaurants must have 500 or fewer employees per physical location. Additionally, they may not have more than 20 locations.

Allowable EIDL proceeds

  • Loan proceeds can be used as working capital to pay any normal operating expenditures. This includes, but is not limited to the following:
    • Payroll expenses, rent, utilities, purchasing equipment, and paying debt
  • COVID-19 EIDL funds can now be used to prepay commercial debt and make regularly scheduled payments on federal business debt, including debt held by the SBA

COVID-19 EIDL fund use restrictions

  • Funds may not be used to expand a business or start a new business
  • A borrower may not use the funds to make prepayments on debt that is owned by a federal agency (including SBA)
  • Prepayments on debt that is owned by a Small Business Investment Company is also not allowable

How a borrower can determine the amount of eligible funds they can receive

If you were in operation before January 1, 2019, your maximum eligible loan amount is calculated through the following formula:

  • (2019 Gross Receipts – COGS) x 2
    • Gross receipts and COGS are annualized if the business was not open for the entire year
    • Any COVID-19 EIDL proceeds received prior are subtracted from the loan amount calculated

What if the business was never open in 2019?

An eligible business is a business that began operations by January 31, 2020. If your business began operations between January 1 and January 31 of 2020, your 2020 gross receipts and COGS are used to determine your loan amount utilizing the same formula as above.

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Loan calculations if a borrower has already received a loan

Like all COVID relief, there have been many changes throughout this program. The first COVID-19 EIDL limit was $150,000. Subsequently, it was escalated to $500,000. Now, the changes have increased to $2 million. However, the borrow fund eligibility calculation has remained (Gross Receipts – COGS) x 2.

  • If a business calculated that they were eligible for a $3 million EIDL but only received $500,000 due to the cap amount at the time of the loan, that business is now eligible to increase the original loan by $1.5 million to hit the maximum of $2 million.
  • If that same business calculated that they were only eligible for $400,000 based on (Gross Receipts – COGS) x 2, and received $400,000, they would not be eligible for an increase in the COVID-19 EIDL loan because the business already received the maximum loan amount they are eligible for.

COVID-19 EIDL terms

  • The COVID-19 EIDL Program runs through Dec. 31, 2021
  • 30-year loans with fixed interest rates of 3.75% for small businesses are offered
    • This includes sole proprietors and independent contractors
  • The first payment is deferred for 2 years

Pro Tips for EIDL fund updates

  • If your business has already received an EIDL and is eligible for an increase, do not apply for another loan
    • Instead, submit a loan modification through your existing SBA Portal account
  • If your business has not already received an EIDL, create a new SBA Portal account

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