Economic Injury Disaster Loans (EIDL) have provided numerous small businesses with the capital needed to stay afloat amid the economic fallout from the COVID-19 pandemic.
Eight percent of CPAs polled in the AICPA Business and Industry Economic Outlook Survey for the second quarter said they had used EIDL funding during the pandemic.
That’s nowhere near the 56% who turned to the Paycheck Protection Program (PPP) for relief, but EIDL nonetheless represents an alternative that has been helpful to many small businesses.
The AICPA has created a resource to help increase awareness and understanding of the EIDL program for CPAs and their clients. The resource also compares the EIDL to other popular lending programs such as the PPP and the Main Street Lending Program (MSLP). Here are some things CPAs should know about EIDL:
- The interest rate is low. The interest rate is 3.75% APR for most borrowers and 2.75% for not-for-profits. The maximum loan amount is currently $150,000. Under normal circumstances businesses can borrow up to $2 million, but because of the coronavirus crisis, the U.S. Small Business Administration (SBA) has reduced the maximum amount significantly to be able to assist more borrowers. The EIDL program is available to businesses with 500 or fewer employees.
- The term is lengthy. EIDL offers one of the longest terms among the emergency loans that are available for pandemic relief at 30 years. A 12-month deferral also is available for interest and principal payments.
- It’s available for Sec. 501(c)(6) organizations. Unlike the PPP, EIDL makes assistance available to not-for-profits that are exempt under Sec. 501(c)(6) of the Internal Revenue Code. These include business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues.
- Borrowers have to prove economic injury. To receive EIDL assistance, businesses have to prove that they have been unable to meet their operating expenses as a result of the disaster (in this case, the pandemic). “There are some organizations that, despite the pandemic, have been able to keep up their operations,” said Kari Hipsak, CPA, CGMA, a senior manager at the Association of International Certified Professional Accountants who helped create the AICPA’s EIDL resource. “If they have not technically experienced economic injury and don’t have difficulty meeting their expenses, they might not be able to check that box.”
- There is no “double-dipping” with EIDL and PPP. Although businesses can use EIDL to cover expenses that weren’t covered by the PPP, they can’t use EIDL and PPP funds to cover the same expenses. That’s known as “double-dipping” and leaves businesses open to charges of fraud. Additionally, any EIDL advance of up to $10,000 will reduce PPP loan forgiveness.
Although PPP loans are attractive because they are forgivable under certain circumstances, the 30-year term and availability to Sec. 501(c)(6) organizations give EIDL an important niche in the coronavirus relief safety net.
CPA firm personnel can provide information to help clients understand the nuances of the aid that is available.
“Accountants can’t make the decision for clients,” Hipsak said. “But clients have so much on their minds right now that if CPAs can at least show them what their options are, it helps take some of that pressure off the clients of not knowing where to go for assistance.”
AICPA experts discuss the latest on the PPP and other small business aid programs during a weekly virtual town hall. The webcasts, which provide CPE credit, are free to AICPA members. Go to the AICPA Town Hall Series webpage for more information and to register.
The AICPA’s Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.
For more news and reporting on the coronavirus and how CPAs can handle challenges related to the pandemic, visit the JofA’s coronavirus resources page or subscribe to our email alerts for breaking PPP news.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.