This alert focuses on the existing federal economic assistance option with the U.S. Small Business Administration (“SBA”) called Economic Injury Disaster Loans (“EIDLs”).  Dentons will provide updates on the EIDL discussed below, as well as updates on additional economic assistance options, notably the anticipated Small Business Interruption Loan Program (see our most recent client alert on that program here), as new information becomes available. 

U.S. Small Business Administration – Economic Injury Disaster Loan

While the SBA’s EBILs have existed for some time, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 (P.L. 116-123) increases the amount made available to the SBA to use for EBILs to $197.2 million. 

What Is The EIDL?

The EIDL is a low-interest federal disaster loan of up to $2 million offered by the SBA to small businesses, as well as private, non-profit organizations to help alleviate economic injury directly caused by the coronavirus in certain approved areas. 

Which States Are Eligible?

As of March 23, 2020, small business owners in the following designated states are eligible to apply for a loan: Arizona, California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Illinois, Indiana, Louisiana, Maine, Maryland, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, Washington, and West Virginia.

Certain contiguous counties located in the following states are also eligible: Alabama, Arizona, Arkansas, Idaho, Iowa, Kentucky, Mississippi, Missouri, North Dakota, Oregon, Texas, Vermont, Wisconsin, and Wyoming.

The most current list of states and contiguous counties can be found here.

What Is An Eligible “Small Business?”

There unfortunately is no single SBA guideline when it comes to size of the business.  Factors taken into account vary by industry and may include:

• Average annual revenue (depending on the industry, annual revenue may not exceed $1 million or $30 million); or
• Average annual number of employees (depending on the industry, the maximum number of employees might be 250 or 1,500).

See 13 C.F.R. § 121.201 (setting forth a table of SBA size standards identified by North American Industry Classification System (NAICS) codes).  Moreover, when calculating the size of your business, the SBA requires including the revenue and employees of any affiliates (i.e., a business that controls or has the power to control another, or a third party that controls or has the power to control both businesses).  The SBA offers online a Size Standards Tool for prospective applicants to check if their organization qualifies as a small business.

Additionally, a “business concern” for the purposes of EIDL is: (1) a business entity organized for profit; (2) with a place of business located in the United States; and (3) which operates primarily within the United States, or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.”  13 C.F.R. § 121.105(a).  The business concern may be:

• An individual proprietorship;
• A partnership;
• A limited liability company;
• A corporation; or
• A joint venture, association, trust, or cooperative, except that where the form is a joint venture there can be no more than 49% participation by foreign business entities in the joint venture.

13 C.F.R. § 121.105(b). 

Importantly, your organization is not eligible for the EIDL if, for example, your organization is:

1. Engaged in lending, multi-level sales distribution, speculation, or investment (except for real estate investment with property held for rental when the disaster occurred);
2. A non-profit or charitable concern, other than a private non-profit organization;
3. A consumer or marketing cooperative;
4. Deriving more than one-third of gross annual revenue from legal gambling activities;
5. A loan packager which earns more than one-third of its gross annual revenue from packaging SBA loans;
6. Principally engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs, whether in a religious or secular setting; or
7. Primarily engaged in political or lobbying activities.

13 C.F.R. § 123.301. 

Use of EIDL Proceeds?

EIDL proceeds are working capital loans and may be used to pay fixed debts, payroll, accounts payable, and other bills that cannot be paid due to the impact of the coronavirus.  See 13 C.F.R. § 123.303(a).

Importantly, loan proceeds may not be used to:

• Refinance existing debt;
• Repay other SBA loans or loans from another federal agency;
• Pay, directly or indirectly, any taxes, fines or penalties;
• Repair physical damage; or
• Pay dividends or other disbursements to owners, partners, officers or stockholders, except for reasonable remuneration directly related to their performance of services for the business. 

13 C.F.R. § 123.303(b).

What Are The Conditions?

• The interest rate is 3.75% for small businesses and 2.75% for private, non-profit organizations. 
• The SBA offers loans with long-term repayment options, up to a maximum of 30 years; however, the term ultimately will be determined on a case-by-case basis, depending on the borrower’s ability to pay. 

The Application Process and Timing?

The application for the EIDL is a three-step process:

• Apply for a loan;
• Verify property and make loan processing decision; and
• Close loan and disburse funds. 

The timing of the first step is largely in the control of the applicant as it consists of filling out the forms listed below.  With respect to the second step, it has historically taken the SBA loan officers up to three weeks to make a decision.  As to the third step, the SBA will prepare and send loan closing documents for signature upon approving the application.  Once the loan closing documents are received, an initial disbursement of $25,000 has historically been made within five days.  The loan will be fully disbursed in subsequent disbursements pursuant to a schedule determined by a case manager assigned to work with the borrower. 

When Do I Need To Apply By?

• The deadline to apply for the EIDL is nine months from the date of the state governor’s disaster declaration. 
• While the deadline may seem like months away, if your organization needs access to capital immediately, your organization may wish to consider applying for the EIDL sooner, rather than later, because processing applications may take a considerable amount of time.  
• Prospective applicants should also be mindful that the SBA likely will experience significant backlog in processing applications, or that the SBA could deny the application, which would delay relief.

How To Prepare?

Review the following forms and collect information prior to starting the application:

• Business Loan Application (SBA Form 5);
• IRS Form 8821 and/or IRS Form 4506-T;
• Personal Financial Statement (SBA Form 413) (if a sole proprietorship); and
• Schedule of Liabilities (SBA Form 2202). 

Gather the following information or documents:

• Year-end and current profit and loss statements;
• A monthly breakdown report of sales; and
• Complete copies of the business’s most recent Federal income tax returns (typically the last three).

Where Can I Apply?

Prospective borrowers may submit an online application here.  While the SBA prefers online applications, prospective borrowers can also call contact the SBA disaster assistance customer service center at (800) 659‑2955 (TTY: (800) 877‑8339) or e-mail disastercustomerservice@sba.gov and request a paper application by mail.