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Originally Published: Apr 10, 2020
Originally Published: Apr 10, 2020 Last Updated: May 05, 2020 8 min read
Lixia Guo / Money

Note: Through April 24, the Small Business Administration has issued $4.8 billion in EIDL advances. However, it is now only accepting new applications from agricultural businesses "due to limitations in funding availability and the unprecedented submission of applications already received."

As small businesses continue to struggle with the coronavirus crisis, the U.S. government is stepping in to help — kind of.

The rollout of the CARES Act's $349 billion Paycheck Protection Program has been rocky, to say the least. Applicants have faced tech problems, rigorous criteria and, in some cases, banks that have already run out of money to give. Amid the confusion, desperate business owners are turning to another Small Business Administration initiative in hopes of getting cash fast: the Economic Injury Disaster Loan program.

Abbreviated EIDL, it usually runs in connection with a natural disaster (think hurricanes, floods and wildfires). And it has quite a strong selling point. Through EIDL, small business owners in need can not only apply for a loan but also receive as much as $10,000 up front. They don't have to pay it back, and it's supposed to be disbursed quickly.

"Free money within a few business days? It doesn't get much more appealing than that," says Ken Alozie, a managing director for Greenwood Capital Advisors.

However, there have already been major issues with EIDL's complicated details and disastrous launch. Here's everything you need to know.

Who is eligible for EIDL?

Businesses in the 50 states, the U.S. territories and Washington, D.C., with fewer than 500 employees are eligible, as are private nonprofits and veterans organizations. (Some businesses with more than 500 workers can also qualify, contingent upon SBA's size standards for the industry.)

Applicants had to be in operation as of Jan. 31.

How do I apply for EIDL?

Go here.

Applicants will be judged on their credit history and ability to repay. The application also asks about gross revenues, how much their goods cost, lost rents, operation expenses, how many employees they have and what other kinds of reimbursements they're planning to get.

"They've streamlined the application process, so as opposed to the two hours it initially took, it's now a 10- to 15-minute application," Alozie says. "It's as easy as checking a box to be considered for the $10,000 grant."

How much can I get from EIDL?

EIDL loans go up to $2 million. Small businesses are subject to a 3.75% interest rate, while nonprofits have a 2.75% interest rate. Terms go up to 30 years.

Wait. Does EIDL give grants or loans?

This is where it gets interesting. The SBA has said EIDL applicants trying to survive the coronavirus outbreak can get a $10,000 emergency advance on their loans. Because this advance doesn't have to be paid back, some people have been referring to it as a grant.

"This loan is intended to be a very quick fix to help employers now," says Mark Baran, principal at accounting firm Marks Paneth. "They call it an advance, but it's just, 'Here's $10,000, use it for what you need.'"

What can I use EIDL funds for?

The EIDL grant can be used for essentially any business purpose, according to Alozie, who is also a mentor with SCORE. Think: paid sick leave, payroll, buying materials, making rent and repaying obligations. The funds are not supposed to be used for physical repairs, expansions, bonuses or refinancing long-term debt.

"It's relief funds meant for businesses that were sustainable before this crisis to enable them to weather through and minimize the amount of people they would have to lay off," Alozie adds.

EIDL vs. PPP: What's the difference?

There are a couple of factors that set EIDL apart from PPP.

The first is the entity granting the loan. The SBA itself is handling EIDL applications, whereas PPP requests have to go through banks like Wells Fargo or Bank of America.

PPP also has tighter restrictions on what you can use the money for. PPP loans can qualify for forgiveness later on, but in order for that to happen, at least 75% of them have to be spent on payroll costs. There's not a requirement like this for EIDL. ("It's not a forgivable loan; it's a real loan," Baran says.)

Finally, PPP loans can be much larger than EIDL ones. The maximum PPP loan is $10 million, whereas the biggest EIDL loan is just $2 million.

Can a business get both EIDL and PPP?

Yes — you just can't use both for the same purpose, says Todd McCracken, the president of the National Small Business Association.

You may also be able to roll an EIDL loan into a PPP loan, potentially qualifying for forgiveness and decreasing the interest rate to 1%, as Sen. Bill Cassidy, R-La., explained in a recent webinar.

How long does EIDL take?

The SBA initially promised EIDL advances would go out within three days of a successful application, but that doesn't seem to be happening. McCracken says the SBA is "slammed" with requests. Sen. Brian Schatz, D-Hawaii, seemed to confirm this in a post on his website.

"Overwhelming interest in the program has slowed the process," Schatz wrote. "This makes it difficult to estimate when applicants will receive the advance."

What's this about an EIDL hoax?

Social media — particularly, Twitter and Reddit — is full of irritated small business owners who say they applied for EIDL weeks ago only to hear nothing back. Some of them started the hashtag #EIDLHoax to air their grievances and demand solutions.

There's even a petition with about 400 signatures called "Hold The SBA Accountable For The EIDL Failures."

McCracken warns that there are also actual EIDL scammers out there. Fraudsters have been emailing small business owners, he says, "making themselves look like the SBA website or portal or something [and] trying to gather people's financial information." So be careful.

What else do I need to know?

Misinformation and rumors are everywhere online due to the sensitive nature of the issue and piecemeal launch of both EIDL and PPP. One prime example is the fact that on Monday, the SBA's Massachusetts district office posted on its website that EIDL advances were being limited to $1,000 per employee up to $10,000 (as opposed to $10,000 across the board). Meanwhile, the national SBA website continues to show that the advances are $10,000.

That makes a huge difference, especially if you're self-employed. If a business owner has been counting on getting $10,000 and putting expenses on a credit card in the meantime, and all of a sudden they learn they're only getting $1,000, they may be stuck with that debt.

Another prevalent rumor is that EIDL loans may in fact be capped at $15,000 for two months. The SBA did not return Money's request for clarity on this or the advances.

"If they are now changing the rules of the game, that's really hard for business planning," McCracken says.

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