The SBA Disaster Loan Program

The options for loan packages and programs have increased during the pandemic. One such popular program right now is the SBA disaster loan program, better known as the EIDL (Economic Injury Disaster Loan). The EIDL is a great loan for independent contractors, small businesses, sole proprietors, and more. 

What is it?

The SBA disaster loan program is a Covid19 relief loan that is specifically for US citizens affected by natural disasters during the pandemic. Those whose business has been hurt by a disaster (such as a hurricane or tornado) can apply for a loan of up to $2 million dollars, unofficially reports have stated the SBA is capping limits to $150,000 as a policy due to the high volume of demand. 

EIDL Advance 

On July 11, 2020, the U.S. Small Business Administration (SBA) announced it would no longer be granting advances under the Economic Injury Disaster Loan (EIDL) program. The EIDL Advance program provided businesses with $1,000 per employee up to a maximum of $10,000. Recipients did not have to be approved for a loan to receive Advance program funds. The funds went to nearly 6 million small businesses, including not-for-profit organizations, sole proprietors, and independent contractors, among others, the SBA said in a news release. 

Guide to Estimating Approval Amount

While this is not an exact formula as other factors like credit, business type also play into approval amounts provided by SBA loan officers. Approval amounts have generally ranged based on Gross Revenue – COGS /2 – EDIL Advance = Approval Amount. This serves as a guide for illustration purposes and is not exact.

How to Apply? 

The application process for the SBA disaster loan program is simple. Those interested can apply directly through the SBA website. The application is meant to take under 1 hour. It includes five sections to fill out: disclosures, business information, business owner’s information, additional information, and finally, a summary.

Disclosures– This part of the process requires applicants to check what business they are and what qualifies them for the loan. 

Business Information– This is the longest part of the application. It will require an income statement, gross revenues over a 12-month period, cost of goods sold over a 12-month period, any other loans or compensation received, and the business owner’s name and phone number.

Business Owner’s Information– This is the information that one would find on any other application. This information needs to be: SSN, date of birth, place of birth, US citizenship, and residential street address. 

Additional Information– This is all the extra information SBA wants to know, like whether the applicant has a criminal history and banking information.

How to Prepare for the Application?

The steps for preparing for the application, like the application itself, are quite simple.

  1. Fill out the online application
  2. Find and submit all necessary documents for the loan
  3. Wait for the SBA to review your documentation. The loan officer will reach out in one of three ways: phone, email, or online portal.
  4. The loan officer will offer a loan, or tell the applicant they don’t qualify. It is at this time the applicant can approve or decline the loan.
  5. Repayments to SBA will start 11 months after the loan has been issued.

What are the EIDL loan minimum requirements?

  • Business start date: must be prior to 1/31/20 otherwise loan will be automatically declined.
  • Operating Business: any business must pass the verification of valid operation if it comes up in a google search that is satisfactory. Alternatively, you may have to prove the legitimacy of your business.
  • Business Activity: business type must have eligible business activity otherwise loan will be automatically declined. See ineligible business types here
  • Citizenship of Owners: All owners must be US citizens or Permanent Residents otherwise loan will be automatically declined.
  • Credit Score: minimum 570. They do NOT use FICO. The credit score is the largest factor for approval for EIDL loans and no exceptions are made for lower credit scores.
  • Economic Injury: the eligible amount is calculated automatically by a formula based on your inputs.
    • Formula for Small Business: ((Revenue – Cost of Goods Sold) / 2) – EIDL advance
    • The formula for Non-Profit: 6 months of Operating Expenses prior to 1/31/20
    • The formula for Businesses collecting Rental Property Income: Lost Rents
  • “Economic Injury Not Sustained”: means that the formula results in a negative number or less than your advance will be declined.  
  • Tax Liens or Issues: are NOT a disqualifying factor or taken into consideration for the COVID19 disaster.
  • Bankruptcies: if you are in an open bankruptcy, then your loan will be automatically declined.
  • Arrest: if you have been arrested for a felony in the past 5 years then your loan will be automatically declined.
    • Felony: if you have been arrested for a felony in the past 5 years then your loan will be automatically declined.
    • Misdemeanor: if you have been arrested for a misdemeanor in the past 5 years then your loan will be automatically declined.
  • Delinquent Child Support:
    • Sole proprietors: if delinquent child support exceeds 60 days then your loan will be automatically declined.
    • Any business principals with 50% or more ownership: if delinquent child support exceeds 60 days then your loan will be automatically declined 

Do I have to accept the loan?

No, you can choose to decline the loan. So it doesn’t hurt to apply, especially considering this same information will likely be required for any other loans you choose to pursue.

What is the filing deadline?

December 16, 2020 (this varies slightly by state—some state deadlines are up to December 21). However, there is a grace period: if you miss the deadline, you may still apply with a written explanation as to why the deadline was missed.

What are the record-keeping requirements for the EIDL?

 Part of the record keeping requirements for holding an EIDL loan includes maintaining “current and proper” records for the most recent five years until three years after your loan maturity or after the loan has been paid in full. This will entail an income statement, a balance sheet, insurance policies, tax returns and related filings, records of earnings or dividends distributed, and records of compensation to owners or shareholders. 

If you’ve accepted an EIDL and want to remain compliant,

When do repayments start?

An automatic 11-month deferment on payments will start once loan documents are signed (this is up from the previous 4 months). 

Waiting for Results   

There is no direct timeline for qualifying for the EIDL as it’s based on current demand. Many of AMP Advance’s clients have been funded in less than 30 days and others have taken over 90 days. That being said, AMP Advance offers a free consultation to go over your alternative financing options and help guide you to the best probable outcome for financing whether with the EIDL or one of our several options. While waiting for your EIDL application, consider our Unsecured Business Loans which are a fast and convenient option without the use of funds restrictions unlike the EIDL, and these loans do not cause conflict with the EIDL program. There is no risk to applying and no impact on your credit score to view your options.

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