The COVID-19 pandemic left millions of businesses struggling to stay afloat. Between lockdowns, quarantine, and uncertainty over the future, small business owners found themselves stuck between a rock and a hard place. Unfortunately, some were forced to make the difficult decision to close down operations, and many of those had to do so permanently. To combat these unforeseen circumstances, aid came in the form of disaster relief funds.
What disaster loan programs offer loan forgiveness? [1]Under the CARES Act, there are two disaster loan programs that offer varying degrees of loan forgiveness:
While both of these loans benefit business owners, their approaches to doing so differ in terms of amounts, how the funds are sent and what expenses they can cover.
Economic Injury Disaster Loan (EIDL). [2] EIDL have been around for a long time. Under the Cares Act it was reintroduced and termed as COVID-19 EIDL. This was defined as a long-term direct loan program from the SBA for the purpose to meet financial obligations and operating expenses that could have been met had the disaster not occurred. The loan amount could be up to 6-months of working capital with a fixed 3.75% fixed rate for businesses for 30 years.
Two Parts. This COVID-19 EIDL was essentially two parts. When businesses applied for the EIDL between April until July 2020, they also could check off a box to receive an advance grant (the “Advance”). [3]The intention of this Advance was to tide over businesses as they wait to hear back about their application.
It is typical for this Advance to be deposited into the business’s account with no other information. The SBA would then reach out at a later date when they have processed the EIDL application to communicating about a loan offer or rejection. Even if you are rejected for the EIDL or you choose to not accept the offer, you can keep the advance grant.
Applicants could receive a minimum $1,000 to pay for immediate costs for small businesses or private nonprofit organizations as part of a grant program.
As the amount of the grant advance was determined by the number of employees indicated on the EIDL application, businesses could receive $1,000 per employee, with a maximum of $10,000. While the grant advance seemed simple enough, there are a few things that should keep in mind.
Before the 2021 Consolidated Appropriations Act (the “Act)[4] was signed into law on December 27th, 2020, businesses that received an EIDL Advance in addition to the PPP loan will have the amount of the EIDL advance subtracted from the forgiveness amount of their PPP loan.
Now the new Act repeals this provision so the receipt of an EIDL Advance will have no impact on PPP loan forgiveness. Borrowers that have already applied for and received loan forgiveness presumably may now amend their application to request that the $10,000 EIDL Advance (or amount actually received) not reduce their forgiveness amount and request repayment. If your business also received a PPP loan this may interest them.
Are both parts of EIDL Forgivable? No. Only the advance is forgivable, while the main loan is not. Although the advance is no longer available, if you have received an advance, it was automatically forgiven, provided you spent the funds on eligible expenses such as:
The EIDL advance funds are not intended to cover lost sales, business expansion or refinancing long-term debt.
At Marvel Law, we are here to help serve you with purpose. We can help to connect you with sources to expedite the PPP loan process. Click here to email us or call us at 309-807-2885 for your FREE 15-minute consultation. Due to CDC guidelines, we are offering FREE 15-minute video conference consultations. To take advantage of the video conferencing ability, please email us to set up a time.
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