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EIDL Loan Requirements: What Are They?

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Kelly Boyer Sagert

Kelly Boyer Sagert

Updated September 16, 2021
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EIDL Loan Requirements: What Are They?
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 US Small Business Administration (SBA), these 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, and now the COVID-19 pandemic.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. And in September 2021, the maximum amount that an organization can borrow was raised to $2 million for COVID-related injury.

What’s the Difference Between the EIDL Grant vs. the EIDL Loan?

Before we go any further, here’s an important clarification. 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 may be able to apply for a loan advance (an EIDL Advance) through the EIDL program. If the application is approved and certain criteria are met, this money can be a grant (forgivable funding). That means that the business owner would not need to pay back the Advance funds. Here’s how it works. Businesses that applied for EIDL funding are sometimes eligible for up to a combined maximum of $15,000 in Advances. To receive one, a small business first needs to apply for an EIDL loan. If the SBA thinks the business might meet its criteria, the SBA may issue an invitation for it to apply for one of the Advance programs. The first round of these grant funds was quickly used up, however, and the initial EIDL Advance is not currently available. However, two new Advances are still available through the end of 2021: The Targeted EIDL Advance and the Supplemental Targeted EIDL Advance. The Targeted EIDL Advance provides qualified businesses with up to $10,000 if they are located in a low-income community; can show that their revenue was reduced by more than 30% during an eight-week period starting in March 2020 or later; and had 300 or fewer employees. There’s also a Supplemental Targeted Advance that can provide eligible small businesses with $5,000 that doesn’t need to be repaid. This can be made available to companies that have also received an EIDL Advance or Targeted Advance. To qualify, the business needs to be in a low-income area; have more than a 50% economic loss during an eight-week time period starting in March 2020 or later; and have 10 or fewer employees. 

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
  • Receive more than one third of gross annual revenue from legal gambling
  • Be in the lobbying industry
  • 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 if your business. 

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 maximum loan amount for businesses with 24 months’ worth of economic injury is $500,000 with a 30 year term. 

Interest Rates

The interest rates are also set for EIDL loans.
  • 3.75% for businesses (fixed)
  • 2.75% for nonprofits (fixed)

Fees

There are no fees or prepayment penalties for EIDL loans. 

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 
As of Sept. 8, 2021, acceptable uses for COVID-19 EIDL funds have been expanded to include prepaying commercial debt and paying federal business debt.

Collateral Requirements

For loans of more than $25,000, businesses must provide collateral, which can include equipment, machinery, furniture, and so forth.

Payments

If you receive funds for a COVID-19 EIDL, you have the option of starting to make payments right away or you can take advantage of a two-year deferment period when interest accrues (usually that period is one year, but it’s been extended for COVID-19 EIDL loans). At the end of that period, any accrued interest is added to the loan’s principal. This loan is not forgivable so any borrower will be required to pay the balance back in full.

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. To estimate your monthly payment, input the principal amount on a loan calculator using the interest rate of 3.75% (or 2.75% for a nonprofit) and a 30 year term. If you don’t plan to make payments during the first year, remember that the interest will accrue and be added to the principal amount of your loan after the first year has passed.

Other Frequently Asked EIDL Questions

Here are more answers to some common questions.Q: Does my credit score matter?A: Credit scores will be factored into the decision-making process, but the SBA does not provide specifics about this type of EIDL qualification. Q: Is there any more documentation I need to provide?A: Business owners will not be asked to prove that they couldn’t get credit elsewhere, but the SBA has the right to review an applicants’ tax records. Q: Can you have more than one EIDL loanA: The answer is that you can’t have more than one EIDL loan for COVID-19. However, if your business was, for example, affected by a natural disaster like a tornado before the pandemic and you got an EIDL for that, you might still be eligible for an EIDL for COVID-19 also. And of course you may be eligible to get up to two of the different EIDL Advances.     Q: Are these taxable loansA: Loans that you pay back, like the EIDL, are typically not considered taxable income.  The CARES Act provides that EIDL Advances, though they are essentially grants, will also not be taxed by the federal government. Plus, any expenses paid with those dollars would still be tax deductible.

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. 
  • Low Interest Rates: They’re currently 3.75%, fixed, for small businesses and 2.75%, fixed, for non-profit agencies.
  • Long Terms: The term is 30 years. 
  • Flexibility About When Payments Start: There is a year of deferment (or two years for COVID-19 EIDL loans), which means your business can wait a year (or two years) to start making payments, if you wish.
  • 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.” COVID-19 EIDL loans may also be used for prepaying commercial debt or paying federal business debt.
  • 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.

The Takeaway

The federal government has given the EIDL loan program at the SBA billions of dollars to help small businesses and private nonprofit agencies. There are several advantages to this loan program for small businesses, including how easy it is to apply and the low 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. Lantern by SoFi can help you with the process of  getting a small business loan by giving you options from a broad network of financial partners to find the best loan for your small business needs.
Photo credit: iStock/andresr
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC0721135

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?

About the Author

Kelly Boyer Sagert

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.
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