What is the Economic Injury Disaster Loan (EIDL)?

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The Small Business Administration’s Economic Injury Disaster Loan (EIDL) can help businesses, renters, and homeowners affected by declared disasters. On March 27, 2020, the president signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. The CARES Act expands the EIDL program to meet the financial needs of struggling small business owners impacted by the coronavirus.

Under the EIDL provisions of the CARES Act, small businesses and other eligible applicants can apply for working capital loans of up to $2 million. Borrowers can use funds to pay fixed debts, cover payroll, and pay other bills they cannot otherwise pay due to the economic impact of the coronavirus.

Business owners can also apply for an EIDL emergency advance of up to $10,000. These funds will be made available within days of application and will not need to be repaid, even if the business’s application for an EIDL loan is denied.

How to determine Economic Injury Disaster Loan eligibility

Small businesses, as defined by the Small Business Administration (SBA), in all U.S. states and territories are eligible to apply. Recent and temporary changes to the EIDL program also expand the types of businesses that may be eligible for EIDLs. The program is now also available to nonprofit organizations, small agricultural cooperatives, sole proprietors, independent contractors, and any other business cooperative, ESOP, or tribal small business with fewer than 500 employees.

Who is eligible for an Economic Injury Disaster Loan?

In additional to small businesses, entitles eligible for an EIDL loan have been expanded to include:

• Private nonprofit organizations
• Small agricultural cooperatives
• Proprietorships, with or without employees and independent contractors
• Any business, cooperative, employee stock ownership plan, or tribal small business with not more than 500 employees

To be eligible, businesses must have also been in existence on or before January 31, 2020.

Business owners who have an existing SBA loan may still be eligible for an EIDL, but they cannot consolidate loans. Potential borrowers must have a credit history acceptable to the SBA and the ability to repay the loan. Business owners must be able to prove that their business has suffered substantial economic hardship as a result of the coronavirus.

Does the Economic Injury Disaster Loan cover sole proprietors and independent contractors?

Yes. Under the CARES Act, sole proprietors with or without employees and independent contractors are eligible to apply for Economic Injury Disaster Loans.

Who is not eligible for an Economic Injury Disaster Loan?

Ineligible businesses include but are not limited to:

• Businesses that do not meet the above-listed eligibility requirements.
• Businesses engaged in illegal activities as defined by federal guidelines.
• Businesses with a 50% or greater owner who is over 60 days delinquent on child support obligations.
• Agricultural enterprises, such as farms or ranches, other than an aquaculture enterprise, agriculture cooperative, or nursery.
• Loan packagers or businesses engaged in lending, multi-level sales distribution, speculation, or investment.
• Businesses with displays of prurient sexual nature, directly or indirectly.
• Businesses with more than one-third of gross annual revenue from legal gambling.
• Lobbyists.
• Government entities or members of Congress.

How much can an eligible business borrow?

Eligible businesses can borrow up to $2 million of working capital. Borrowers can apply for an EIDL emergency advance of up to $10,000, pending an approved application, and the funds will not need to be repaid, even if the business’s application for an EIDL is denied.

What can I pay for using an Economic Injury Disaster Loan?

Borrowers can use Economic Injury Disaster Loans to pay sick leave to employees unable to work due to the direct effect of COVID-19; maintain payroll to retain employees; meet increased costs to obtain materials unavailable from the business’ original source because of supply chain issues; pay rent or mortgage payments; and repay certain obligations that cannot be met due to revenue losses.

Borrowers cannot use loans to pay dividends, bonuses, or disbursements to owners unless directly related to business services. Among other restrictions, EIDLs cannot be used for facility expansions, to refinance long-term debt, or to pay down other federal loans. EIDLs do not replace lost sales or revenue.

What are the Economic Injury Disaster Loan terms?

The EIDL interest rate is currently 3.75% for small businesses and 2.75% for nonprofits. To keep monthly payments low, the SBA offers long-term repayment plans to eligible borrowers—up to 30 years. Repayment terms may be determined on a case-by-case basis and depend on each borrower’s ability to repay.

The SBA is not charging upfront fees or early payment penalties. Loans over $25,000 may require collateral. The SBA  is unlikely to decline a loan  for lack of collateral but requires borrowers to pledge what they have available. The CARES Act waives personal guarantees on loans under $200,000.

Are Economic Injury Disaster Loans eligible for loan forgiveness?

Business owners will not have to repay the loan advance of up to $10,000 even if their EIDL loan application is not approved. EIDL loans are not otherwise forgivable, though an EIDL loan may be refinanced into a Paycheck Protection Program loan, which is forgivable, in whole or in part, if certain requirements are met.

How to apply for an Economic Injury Disaster Loan

Eligible business owners may apply now through the SBA. Potential borrowers should complete applications in full before submitting them. Incomplete applications may take longer to process. If a loan application is denied, applicants may provide additional information and submit a written request for reconsideration.

There is no cost to apply for a loan and no obligation to accept the loan. If the loan is too low, applicants can submit supporting documentation and request an increase. If the loan is too high, applicants can request a reduction.

What you need to apply for an Economic Injury Disaster Loan:

In addition to basic information likes names and addresses, you’ll need to know, among other things:

• Your federal EIN or Social Security number.
• Your business’s gross revenue for 12 months.
• The cost of goods sold for 12 months.
• The date your business was founded.
• The number of workers you employ.
• Your percentage of business ownership.
• Lost rents (for rental property owners).
• Other reimbursements you will receive (i.e., business interruption insurance).

Gather the following tax forms and documents before you apply:

• Tax information authorization (IRS Form 4506T).
• Federal income tax return.
• Schedule of liabilities (SBA Form 2202).
• Personal financial statements (SBA Form 412).
• Year-to-date profit and loss statements.
• Monthly sales figures.

Economic Injury Disaster Loans vs. Paycheck Protection Program loans

Economic Injury Disaster Loans provide small businesses with working capital loans up to $2 million. Borrowers can use funds to pay fixed debts and cover payroll, accounts payable, and other bills they cannot pay due to the coronavirus.

The  Paycheck Protection Program  is a CARES Act initiative that provides SBA loans for small businesses and other eligible applicants to cover payroll costs. The loan program helps business owners who have been impacted by COVID-19 keep their workers on the payroll. Paycheck Protection Program loans  may be forgivable , in whole or in part, under certain criteria.

When considering each loan, review the eligibility requirements, how much capital your business needs, and how your business would use the funds. When in doubt, consult a financial advisor to choose the best loan for your business.

Can I apply for an Economic Injury Disaster Loan and a Paycheck Protection Program loan?

Some small businesses and other eligible applicants may be eligible to apply for both programs.

However, a business may not receive a loan under both programs for the same purposes. PPP applicants that received an EIDL loan between January 31, 2020, and April 3, 2020, and used those funds for payroll costs must use the PPP loan to refinance the EIDL loan.

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The resources described above are made available to businesses within the United States of America.

COVID-19 relief programs are evolving regularly. Please visit SBA.gov for the most up to date information.

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