The SBA recently announced some major changes to the Economic Injury Disaster Loan (EIDL).
The EIDL loan was originally a $150,000 loan (not forgivable like the PPP) at 3.75% interest for 30 years and no payments for 24 months. This loan limit was increased to $500k back in March. For most of our clients, we recommended applying for this to have as a decent security blanket. It’s a very cheap loan with no prepayment penalty, and it’s nice to have some cash reserves. As we learned this past year and a half, you never know what can happen.
However, keep in mind it is a loan, so you will have to repay this. And while you don’t have to make payments for 2 years, you are still accruing interest every day.
So, what’s changed?
- The max loan amount has now increased to $2 million. The terms have stayed the same though – 3.75% interest and no payments for 2 years, fixed rate for 30 years – so still very cheap money.
- You are eligible to apply for these funds regardless of whether you’ve already received an EIDL loan, or if you previously applied and were denied. If you did already receive, say, $150k, then you would only be eligible for another $1,850,000 – the max amount one can borrow is $2 million.
- You can now pay for any debt with this loan, not just debt incurred due to pandemic hardship. This money can be used to make monthly payments for any business debt, even Federal debt.
- You can also now PRE-pay any non-Federal This means you can pay off existing debt with this money. Chances are any debt you have is higher than 3.5% interest, so this would save you money.
There are new collateral requirements as well. Once you borrow over $200k there is supposed to be a personal guarantee, meaning you have to personally sign for the loan by pledging whatever personal collateral you have. Anything over half a million, they want any real state collateral that you have. Most shops either own real estate personally or in another separate LLC. We don’t know if they will try to cross-collateralize this. But if you own the real estate in your operating entity, they will more than likely get collateral on that.
We have yet to see any shop be limited as to the amount they could receive. Before when the limit was $500k, everyone who applied for that amount received it. We know it has to do with your sales volume, but we don’t really know any other specifics. With the limit being increased to $2 million, there could possibly be a cap put on it.
We still recommend considering the loan if you have less than $100k in the bank and/or some outstanding non-Federal debt. You don’t have to take the max amount, you can only request what you need. But if you have more than $100k in the bank with no major debt, it may not really be necessary to borrow more. There is no prepayment penalty, so if you’re not sure, go ahead and apply. This money will likely go quickly, so act fast if you’re considering it.
Click here to apply for the EIDL, whether it’s your first time or not: covid19relief1.sba.gov
Click here to watch Hunt’s full webinar about these changes: https://paarmelis.com/eidl-updates-2/
