If you’re a landlord having problems with your tenants or a homeowner struggling to pay your mortgage, an economic injury disaster loan can help.
Some of you may want to run straight to the PPP, in which loans can be forgiven. Don’t! You can also obtain the EIDL (Economic Injury Disaster Loan) and use it for a different purpose. I am talking about this loan before describing the PPP for several reasons. First, you can apply online immediately without having to talk with a banker, and second, you can receive up to $10,000 much more quickly and also get this amount forgiven. Here are the details:
These types of loans have been around a long time and used in the past by those whose businesses were harmed by a natural disaster. Since President Trump essentially designated the entire country as a disaster area, these loans fall under the CARES Act and are now available to all business owners. They were also enhanced with an immediate relief check of $10,000 (for those that make too much to get the stimulus check, this is your chance to cash in and get some help for your business).
The SBA has historically offered many favorable terms in their EIDLs:
- Loans are up to $2 million.
- The term is 30 years.
- Interest rates are 3.75% for small businesses and (2.75% for nonprofits).
- The first month’s payments are deferred a full year from the date of the promissory note.
Now under the CARES Act, the EIDLs expanded provisions also include the following:
- EIDLs can be approved by the SBA based solely on an applicant’s credit score (not repayment ability and no tax return is required). The government specified that a prior bankruptcy does not disqualify you.
- EIDLs smaller than $200,000 can be approved without a personal guarantee, no real estate as collateral, and will take a general security interest in business property.
- It expands access to sole proprietors or independent contractors and all nonprofits, including 501(c)(6)s.
The $10,000 emergency cash grants are the most interesting piece of the legislation. Borrowers can receive $10,000 in an emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments, or repaying obligations that cannot be met due to revenue loss.
Moreover, applicants can get the emergency cash even if they don’t qualify for additional funds. Since lending decisions are based on self-certification and the applicant’s credit score, the review process is meant to proceed quickly. CARES also waives the requirement that you be unable to obtain credit elsewhere. That means you can apply even if you already have a credit line.
You can start immediately and apply for these loans directly through the SBA at www.SBA.gov/disaster. There is no need to make an appointment with a banker to start the loan process.
Also, as I stated above, you can apply for both the EIDL and PPP loans. Don’t listen to someone who says you can’t. The reason why there is confusion is that there is one particular restriction: The disclosure comes on the PPP application. It asks if you have received EIDL funds. Guidance in the Act says you have to disclose if you applied, but bankers aren’t currently asking, and the current app doesn’t ask this either (which will probably be updated). For now, I suggest you follow the written word and whatever is on the app. You have to sign and certify the information is correct on the app, and lying would be bank fraud. Don’t lie! From a strategic point of view, apply for the PPP first, then the EIDL if you’re concerned or the app is updated.
If you apply for both and the bank flags as such, it’s not the end of the world. The PPP amount would simply be reduced by the $10,000 emergency funds, but you can still obtain the long-term EIDL funds that aren’t forgiven.
The other restriction is that if you want to receive “debt forgiveness” for the $10,000 EIDL money or any funds you receive under the PPP, the monies can’t be used or counted for both loans. For example, if you use the PPP for payroll expenses during the appropriate time and receive debt forgiveness, you can’t use the same payroll expenses to obtain forgiveness of the $10,000. However, you could use the EIDL money for other things like rent and get the $10,000 forgiveness with a different expense, or use the money for payroll after the PPP period.
Finally, let’s be honest — this is not a loan for you to start a new business. You have to have been in business by January 31, 2020 to qualify. This is to build or save your business after the damages from the coronavirus, which you will have to explain in order to get this loan. Most importantly, this is a loan that you will have to pay back. If your business was already on life-support before COVID-19, maybe it’s time to reconsider your future plans rather than go into more debt.
The Takeaway: File immediately for the EIDL $10,000 emergency funds and continue providing/uploading information to even get a bigger loan if necessary. You can always pull out of the process if you decide later you don’t need the money. Plan to use these funds for things other than the PPP (if you are applying there as well), but in the meantime get rolling so you don’t miss out on the loan if you need it.