Business Owners In Need Of Cash: Check Out The “Enhanced” SBA EIDL Program! | McCarter and English, LLP

The Small Business Administration (SBA) Economic Disaster Lending (EIDL) program, which provides long-term loans directly from the SBA, has been significantly improved. As of April 6, 2021, qualifying companies can borrow, on EIDL favorable terms, up to $ 500,000 to fund up to 24 months of working capital needs instead of just $ 150,000 to fund up to six months of working capital. working capital requirements. Businesses that have previously applied for or received loans from the EIDL program can contact the SBA to request additional funds to reach the new maximum amount of $ 500,000. In addition, an SBA official recently testified before the Senate Committee on Small Business and Entrepreneurship that the agency plans to increase the maximum loan amount for the EIDL program to $ 2 million, the maximum amount allowed by the law. Finally, the SBA extended the deferment periods for all disaster loans, including EIDL; Businesses that applied for loans in 2020 now have 24 months from receipt of loan proceeds before repayment begins, and businesses that apply for loans in 2021 now have 18 months before they start repaying.

When enacted in March 2020, the Coronavirus Help, Relief and Economic Security Act (CARES Act) expanded the existing EIDL program by streamlining the application process and offering higher interest rates. lower and longer repayment terms. Funding for the EIDL program comes directly from the US Treasury. Small businesses face no application fees and are not required to accept the loan if their business qualifies. Before the coronavirus pandemic, the EIDL program offered loans of up to $ 2 million. However, once the coronavirus pandemic struck, the SBA lowered the loan amount to $ 150,000 per applicant for fear of running out of funding. The SBA still has around $ 270 billion available for the EIDL program after having already loaned around $ 200 billion on approximately 3.7 million loans under the EIDL program, 90% of which to companies with 10 or fewer employees. The average processing time for an EIDL application is 17 days and the ASB currently processes around 10,000 loan applications per day.

Businesses eligible to receive loans from the EIDL program

  • Small businesses (including restaurants, retailers, hotels, manufacturers, rental property owners and wholesalers) with fewer than 500 employees
  • Small agricultural cooperatives or agricultural enterprises
  • Employee shareholding with less than 500 employees
  • Sole proprietorships
  • Independent contractors
  • Most private non-profit organizations and tribal businesses with less than 500 employees

Businesses that conduct any of the following activities are not eligible to participate in the EIDL program: investing, lending, loan packaging, distributing tiered sales, gambling, speculation, or illegal activity.

EIDL program loan conditions

  • The interest rate is 3.75 percent annual percentage rate (APR) for small businesses and 2.75 percent for nonprofit businesses.
  • The maximum repayment period is 30 years.
  • Payments are deferred for two years if the loan was requested in 2020 and 18 months for a 2021 request.
  • Interest accumulates during the deferral.
  • Guarantee required for a loan over $ 25,000.
  • Personal guarantees from owners of 20% or more of the business.
  • The loan can be prepaid at any time without penalty.

Uses of EIDL Program Loan Proceeds

  • Payroll, Accounts Payable, Utilities, Debt Payments, Other Operating Expenses, and General Working Capital
  • Non-qualifying uses include (i) dividends and bonuses; (ii) disbursements to owners (except when they are directly linked to the provision of services); (iii) repayment of shareholder / principal loans (except when they are provisionally injected due to the disaster and non-repayment would cause prejudice to the shareholder / principal); (iv) expansion of facilities or acquisition of property, plant and equipment; (v) repair or replacement of physical damage; (vi) refinancing of long-term debt; and (vii) repay or repay other loans granted by any federal agency, including the SBA.

The EIDL program loan application and additional information about the EIDL program can be found here.

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About Robert Valdivia

Robert Valdivia

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