economic injury disaster loan

Many small businesses are still struggling to get back on track due to the COVID-19 crisis. If your small business is also struggling then you can take advantage of SBA disaster loan assistance. Do you qualify for this assistance? How can you apply? What can you do in case you default? Let’s find answers to these questions. Whether you are an independent contractor or sole proprietor, you can get an SBA Economic Injury Disaster Loan for COVID-19 relief. 

If your business is affected by an earthquake, hurricane, COVID-19 or any other economic injury, you can get an SBA disaster loan assistance of up to $2 million. The interest rate for a non-profit organization is 2.75% and the interest rate for a business is 3.75%. The loan term is 15 to 30 years. 

The goal of this assistance is to provide the working capital you need to run your business during this crisis. You can use these funds to pay rent, pay interest or cover payroll. You can decide how you are going to use these funds for your business. 

However, you cannot use the Economic Injury Disaster Loan and the PPP loan to cover the same expenses. 

EIDL Qualification

To qualify for this loan, you need to prove that the pandemic has severely affected your business. Real estate brokers and other independent contractors who can prove that they are no longer working for a separate business also qualify for SBA disaster loan assistance. Any business in all US territories and states can apply for this loan.   

How to Apply 

Visit the Disaster Loan Assistance portal to apply for assistance. After that, a loan officer reviews your application and check your:

  • Credit rating 
  • Tax returns 
  • Income statements 

You may also have to submit Form 4506T as the SBA may need permission to access your tax papers. You need to post personal collateral if you need more than $25,000. If you need less than $25,000, it is your choice. However, you can increase your chances of approval by offering collateral. The lender will not request for this.

Even if you cannot offer enough collateral, the SBA will not reject your application. The SBA assesses what you can offer and determines how much fund should be given.

Spending the EIDL Funds 

This assistance is given to help you cover your working capital expenses. You can cover your day-to-day expenses. However, you cannot use these funds to refinance debt or expand your business. You cannot use these funds for the following: 

  • Relocation 
  • Dividends and bonuses
  • Repayment of principal loans/stockholder
  • Long term debt refinancing 
  • Acquisition of fixed assets or expansion of facilities 
  • Disbursements to owners (With one exemption – There is a direct relation with the performance of services)

What To Do After Getting Funds 

After disbursing funds, the SBA ensures that you are not misusing the funds. According to the EIDL loan agreement, you have to maintain your books accurately for the most recent 5 years. You will have to maintain your books accurately until the loan has been paid off or 3 years after your SBA Economic Injury Disaster Loan matures. You can maintain accurate and up to date books by using a bookkeeping service. 

Getting Forgiven    

You can use SBA forgiveness under special circumstances only. For example, you are unable to pay off the loan. If your business is still operational, you cannot use this option.     

First of all, shut down and resolve your business. The SBA steps in when the bank determines that you cannot pay off the loan. The SBA pays off 50-75% of the debt. You can pay off what you can.