Under the CARES Act, a small business can receive financial assistance by obtaining a loan under the Paycheck Protection Program (“PPP”) or by obtaining an Economic Injury Disaster Loan (“EIDL”). While a loan under the PPP may be preferable due to the forgiveness component, an EIDL still provides substantial relief to businesses economically affected by COVID-19.
1. What is an EIDL? An EIDL is a loan that has been available to small businesses through the Small Business Act. Under Section 1110 of the CARES Act, however, a small business is now eligible to apply for an EIDL if it has been economically impacted by COVID-19. A business affected by COVID-19 that wants to apply for an EIDL must do so before December 31, 2020. After that date, an EIDL for this type of economic injury will no longer be available.
2. Who is eligible for an EIDL? The availability of an EIDL loan has been extended under the CARES Act. Currently, the following entities in existence prior to January 31, 2020 may apply for an EIDL: 1) a business or cooperative with less than 500 employees; 2) a sole proprietorship; 3) an individual contractor; 4) an Employee Stock Ownership Plan (“ESOP”) with less than 500 employees; and 5) a private nonprofit organization.
3. How do I apply for an EIDL? Applications are processed directly through the Small Business Administration (“SBA”). The CARES Act permits the SBA to approve an application based solely on the applicant’s credit score. The applicant is not required to submit a tax return or a tax return transcript for approval. An EIDL is typically disbursed to the borrower within two to three weeks after successfully completing the online application.
4. Can I apply for an EIDL and a loan under the PPP? Eligible borrowers may apply for both an EIDL and a loan under the PPP. However, the CARES Act specifically requires that the amount and purpose of the PPP loan differ from the EIDL and all other loans the business applies for. For example, a business may apply for a $1 million loan under the PPP to provide for payroll costs and a $2 million EIDL for working capital.
5. What is an emergency grant under the CARES Act? Under Section 1110 of the CARES Act, an eligible borrower may request an emergency grant from the SBA when applying for an EIDL. The emergency grant amount is capped at $10,000.00, and the grant is disbursed to the borrower within three days of the application. The grant is not required to be repaid, even if the EIDL application is subsequently denied.
6. If I receive an emergency grant, what can I use the money for? The funds received from an emergency grant may only be used for the allowable uses designated under the Small Business Act. Specifically, to 1) provide paid sick leave for employees that are unable to work due to COVID-19; 2) maintain payroll to retain employees during business disruptions or substantial slowdowns; 3) meet any increased costs associated in obtaining materials that are unavailable from the business’ original source due to an interruption in supply chains; 4) make rent or mortgage payments; and 5) repay obligations that cannot be met due to loss of revenue.
If your business is in need of assistance in obtaining a PPP loan or an EIDL, please contact DRT today to see how we can help you.
