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To answer that question, first we have to address another one: What is an EIDL loan? “EIDL” is short for an Economic Injury Disaster Loan and EIDL loans are available to small businesses, most private nonprofit agencies, and small agricultural cooperatives. Backed by the U.S. Small Business Administration (SBA), the loan funds are intended to help these types of organizations when they are struggling to meet typical operating expenses because of a disaster, including natural disasters like earthquakes and hurricanes.Through the signing of the Coronavirus Aid, Relief, and Economic Security Act (often called the CARES Act) in March 2020, the EIDL program received an additional $10 billion in funding to help small businesses and organizations that were financially affected by the pandemic. In April 2020, another $10 billion was added.It's important to know that the SBA is no longer accepting new applications for COVID-19 Economic Injury Disaster Loans, reconsidering denied requests, or increasing those requests. The EIDL loans for Covid-19-affected businesses is completely over.However, the main EIDL program is still giving out business loans to businesses not citing COVID-19 as the reason for their financial problems.
What’s the Difference Between the EIDL Grant vs. the EIDL Loan?
The EIDL Loan is, as you might expect, a loan. You borrow money and you’re expected to pay it back.However, some business owners were able to apply for a loan advance (an EIDL Advance) through the EIDL program aimed at helping businesses hurt by Covid-19.. If the application was approved and certain criteria were met, this money could be a grant (forgivable funding). That means that the business owner would not need to pay back the Advance funds. SBA is no longer accepting new Covid Advance applications or reevaluation requests, loans or grants. Recommended: Small Business Grant vs Loan: 7 Differences
Does Your Business Qualify for an EIDL Loan?
To get an EIDL loan, a business has to prove that it meets the criteria. Here’s information about EIDL loan requirements.
Businesses with 500 or fewer employees
When applying for funding, you’ll need to confirm that your organization falls into one of these categories:
Business (or agricultural enterprise)
Sole proprietor, with or without employees, or an independent contractor
Cooperative
Employee Stock Ownership Plan (ESOP)
Tribal small business concern
Certain private nonprofit organizations that are nongovernmental
Businesses with 500+ employees
If a business has more than 500 employees, it may still qualify if it can be considered “small” under SBA Size Standards.
Geographical locations
Applicants must be in one of the 50 states or in a US territory.
Additional EIDL requirements
To qualify, your business cannot do the following:
Be engaged in illegal activities as defined in federal guidelines
Have someone with a 50% or greater ownership who is more than 60 days delinquent on child support payments
“present live performances of a prurient sexual nature” or receive more than a minimal amount of revenue through products/services/depictions/displays of such
Be a state, local, or municipal government entity, or a member of Congress
If your business can meet these EIDL requirements and is in need of funds, then it may be worth exploring the program further.
EIDL Loan Terms
Funds from this SBA loan program are earmarked for businesses to “meet financial obligations and operating expenses that could have been met had the disaster not occurred.” And there are specific parameters about how much a business can receive and what the repayment terms will be.
Maximum amounts and loan length
The SBA can provide up to $2 million to help meet financial obligations and operating expenses that could have been met had the disaster not occurred.
Interest rates
The maximum interest rates for variable 7(a) loans are as follows:
Base rate plus 6.5% for a loan of $50,000 or less
Base rate plus 6.0% for a loan of $50,001 to $250,000
Base rate plus 4.5% for a loan of $250,001 to $350,000
Base rate plus 3.0% for a loan of greater than $350,000
Fees
Lenders must pay an Upfront Fee (also known as an SBA Guaranty Fee) for each loan guaranteed under the 7(a) program but are permitted to pass the cost of the fee on to the borrower.
Acceptable uses of EIDL loans
These funds can be used for normal operating expenses and working capital. The SBA lists the following expenses to provide some possible examples.
Continuation of health care benefits
Rent
Utilities
Fixed debt payments
Collateral requirements
For loans of more than $25,000, businesses must provide collateral, which can include equipment, machinery, furniture, and so forth.
Calculating Loan Amounts
When you want to calculate what EIDL loan amount your business may be eligible for, review your financial statements to determine what expenses you need to have funded that fit within the loan’s parameters. They can include normal operating expenses and working capital.
Pros and Cons of EIDL Loans
Every loan has its positive side and its negatives. Here’s the rundown on both.
Benefits of EIDL loans
There are numerous benefits to this loan program, including the following:
Easy Application Process: You can apply online, which can streamline the process. There’s no need to make an appointment or travel to a financial institution to apply.
Flexible Loan Amounts: If your application is approved, the SBA will let your business know how much you qualify for. Then you can borrow up to that amount. So, if you get approved for $125,000 but need only $100,000, you can borrow that amount.
No Fees or Prepayment Penalties: If you want to start making your payments right away, you can, without penalty.
Disadvantages of EIDL loans
There are, of course, also some disadvantages to this loan program. They include:
Not Forgivable: Unlike the PPP loans and the EIDL grant/Advances, these loans are not forgivable and will need to be paid back in full.
Limited Uses. Funds can only be used for specific purposes, such as the “continuation of health care benefits, rent, utilities, fixed debt payments.”
Credit Scores Matter. Credit scores will be considered and factored into the decision-making process, which could present challenges to some businesses.
Summary of EIDL loan pros and cons
This table summarizes the costs and benefits of EIDL loans.
If you have suffered substantial economic injury and own a small business, small agricultural cooperative, or a private nonprofit located in a declared disaster area, you may be eligible for an SBA EIDL. There are several advantages to this loan program, including how easy it is to apply and the moderate interest rate, but this loan is not forgivable and there are restrictions on how the funds can be used. If you don’t qualify for an EIDL loan or it doesn’t seem like the best choice for you, there are other small business loans available. Some loans can be obtained even if you have bad credit and no collateral.Lantern by SoFi can help you with the process of getting a small business loan by connecting you to options from a broad network of financial partners to find the best loan for your small business needs.
Frequently Asked Questions
What is the cap of an EIDL loan?
What is the minimum credit score for EIDL loans?
Who can apply for an EIDL loan?
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About the Author
Kelly Boyer Sagert
Kelly Boyer Sagert is an Emmy Award-nominated writer with decades of professional writing experience. As she was getting her writing career off the ground, she spent several years working at a savings and loan institution, working in the following departments: savings, loans, IRAs, and auditing. She has published thousands of pieces online and in print.
