The U.S. Small Business Administration (SBA) announced major modifications to the COVID-19 Economic Injury Disaster Loans (EIDL) program, including raising the loan cap from $500,000 to $2 million and adding business debt payments to the list of ways businesses can use the loan proceeds.
In a news release issued late Thursday afternoon, the SBA said it was implementing the changes to make it easier for the small business communities still reeling from the pandemic, especially hard-hit sectors such as restaurants, gyms, and hotels, to access the more than $150 billion in funding available for loans.
The following key changes were announced. All are effective immediately:
- Increasing the COVID-19 EIDL cap from $500,000 to $2 million: Loan proceeds can be used for any normal operating expenses and working capital, including meeting payroll, purchasing equipment, and paying debt. COVID-19 EIDL funds are now also eligible to prepay commercial debt and make payments on federal business debt.
- Implementation of a deferred payment period: The SBA said small business owners will not have to begin COVID-19 EIDL repayments until two years after loan origination. Payments are deferred for the first two years (during which interest will accrue), and payments of principal and interest are made over the remaining 28 years. The agency previously had implemented an 18-month deferment period for loans made during 2021.
- Establishment of a 30-day exclusivity window: To ensure Main Street businesses have additional time to access these funds, the SBA said it is implementing a 30-day exclusivity window of approving and disbursing funds for loans of $500,000 or less. Approval and disbursement of loans over $500,000 will begin after the 30-day period.
- Simplification of affiliation requirements: To ease the COVID-19 EIDL application process for small businesses, the SBA established more simplified affiliation requirements to mimic those of the $28.6 billion Restaurant Revitalization Fund.
The COVID-19 EIDL program, which runs through Dec. 31, offers 30-year loans with fixed interest rates of 3.75% for small businesses, including sole proprietors and independent contractors, and 2.75% for not-for-profits.
The SBA referenced the RRF in an interim final rule (IFR) published Wednesday that provides details on many of the changes to the COVID-19 EIDL program. The IFR notes that while the RRF was appropriated $28.6 billion to provide as grants to the restaurant industry, the program received 278,304 applications seeking more than $72 billion in assistance, nearly three times the amount appropriated. Funding was quickly exhausted, leaving 177,300 businesses without assistance — evidence, the SBA said, of unmet funding needs by businesses in an economy now dealing with an upswing in COVID-19 infections related to the Delta variant of the virus.
The IFR also expands COVID-19 EIDL eligibility from organizations with no more than 500 employees to businesses in the hardest-hit industries that have 500 or fewer employees per physical location, provided the business, together with its affiliates, has no more than 20 locations.
The new rule allows COVID-19 EIDL recipients to use loan proceeds to make debt payments including monthly installments, deferred interest, and pre-payment on business debt. The same payments, except for pre-payments, are now permitted on loans from federal agencies (including the SBA) and licensed Small Business Investment Companies (SBICs).
COVID-19 EIDL recipients may use loan proceeds to pay debt incurred both before and after submitting the loan application. Previously, the funds could be used only for working capital needed to sustain the business until it could resume normal operations.
The SBA did add a new regulation limiting entities that are part of a single corporate group to receive a combined total of no more than $10 million in COVID-19 EIDL loans. For purposes of this limit, entities are part of a single corporate group if they are majority owned, directly or indirectly, by a common parent.
AICPA experts discuss the latest on the COVID-19 EIDL and other small business aid programs during a virtual town hall held every other week. The webcasts, which provide CPE credit, are free to AICPA members and $39 for nonmembers. Go to the AICPA Town Hall Series webpage for more information and to register. Recordings of Town Halls are available to view for free on AICPA TV.
The AICPA's Paycheck Protection Program (PPP) resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.
For resources to support small businesses in the post-pandemic environment, visit AICPA & CIMA's Small Business Resiliency Resource Center.
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— Jeff Drew (Jeff.Drew@aicpa-cima.com) is a JofA senior editor.