Update: With new reports of increasing EIDL’s debt limit, which was raised to $ 2 million on September 8.
For the 177,300 businesses that applied for grants for the largely oversubscribed Restaurant Revitalization Fund (RIF) program but received no money, the Small Business Administration has a solution: get a loan.
On Tuesday, the SBA issued an interim final rule that went into effect immediately. The SBA is expanding access to its Economic Disaster Lending (EIDL) program, low-interest loans for businesses and nonprofits damaged by the pandemic, to certain businesses – like restaurants with up to 20 locations, provided each location has fewer than 500 employees. With more than $ 100 billion remaining in loan authorization and other assistance programs out of order, the agency expects demand for EIDL to increase. The EIDL Covid is expected to expire at the end of the year or while funds are exhausted.
According to the original document, loans are still capped at $ 500,000, which is somewhat surprising, as the SBA had to raise the limit on its EIDL loans to $ 2 million. However, Ami Kassar, a small business loan advisor based in Ambler, Pa., Notes that as of this afternoon – without any announcements from the SBA – some business owners have logged into their portal and have saw a button that said “Request a raise”. This button, he says, brings applicants to the EIDL application, noting loan limits of up to $ 2 million. For those who don’t see the button, Kassar adds it’s because they’re not currently eligible for the raise. Eligibility is determined by a company’s 2020 revenue and cost of goods sold.
Collectively, the changes offer to ease the growing tensions between struggling business owners amid the ongoing Delta wave. Of course, they should be prepared to take on more debt.
“This rule is necessary to bring economic relief to small businesses and nationwide private non-profit organizations affected by Covid-19,” the agency wrote in the IFR. “As evidence of an unmet need, the Restaurant Revitalization Fund received $ 28.6 billion in credits and in 21 days … received 278,304 RRF applications totaling over $ 72 billion, or nearly three times the appropriate amount.
Here are three changes to the EIDL program.
More businesses can access the disaster loan program.
Previously, the SBA required companies to take a single test: eligible companies had to have fewer than 500 employees. While this size criterion remains intact for small businesses, nonprofits, and small farmer cooperatives, there are notable changes. For example, businesses with certain NAICS codes like code 72, which includes accommodation and food services businesses, and code 71, which includes arts, entertainment, and recreation businesses, can apply for an EIDL as long as ‘they have no more than 500 employees per location. , up to 20 locations. Small businesses with less than 500 employees at all locations may have more than 20 locations and still be considered EIDL eligible. Payments for each business group are capped at $ 10 million.
Membership rules align.
In order to coordinate membership rules between its programs, the SBA adopts the same membership rules as set out in the RRF. As such, an affiliate may apply for an EIDL as long as the qualifying entity retains an equity stake or a right to profit distributions of at least 50 percent. The same goes for cases in which an eligible entity has the contractual power to control the management of the business, provided that such an affiliation existed on January 31, 2020. So let’s say your business has been partially acquired by a company. private equity firm before the end of 2020 and you still have a 50% stake, you will be able to apply for an EIDL.
Different types of expenses are now eligible.
The SBA expands qualifying uses of its EIDL to include payments on all forms of commercial debt, including loans held by a federal agency (including the SBA) or licensed Small Business Investment Corporation (SBIC) under the Small Business Investment Act. Previously, the proceeds could only be used to pay for expenses necessary to maintain the business until the resumption of normal operations, and for expenses necessary to mitigate specific economic harm. It previously prohibited payments on federal debt or the prepayment of existing non-federal debt, even if the debt has a lump sum payment due.
With the increase in the debt limit and these other changes, the SBA’s EIDL program is even more attractive to those who wish to take out loans with terms of 30 years and terms of interest ranging from 2.75 % for non-profit organizations to 3.75% for businesses.
Since most restaurants that successfully apply for RRF grants needed more than $ 280,000 on average, the expanded EIDL should more than cover their needs. Whether getting that amount through a loan will be what will keep them from tipping over the edge is another question.