The SBA has reopened its Economic Injury Disaster Loan (EIDL) program. Apply, and you could get up to $150,000 in funding for your small business. Here’s what you need to know.
What is the EIDL?
The EIDL is a low-interest loan program administered by the SBA. It’s meant to provide relief to small businesses affected by Coronavirus.
A quick overview of the EIDL:
- Loan amount: Currently a maximum of $150,000
- Interest rate: 3.75% for small businesses (2.75% for non-profits)
- Loan term: 15-30 years
- Bonus: You won’t have to make your first payment for 12 months
Who should apply for the EIDL?
The EIDL is flexible. Any business entity can apply. If you need the funds, it’s worthwhile to apply as soon as possible. The EIDL program closed temporarily this spring due to high demand at the beginning of lockdown. Congress has since replenished funds and the EIDL is expected to be available for the remainder of the pandemic.
However, if you are behind on payments for other SBA loans or loans from a different federal agency, or any other type of federal debt, you won’t be eligible for the EIDL. The big exception to this is IRS obligations. You can still apply for the EIDL if you owe tax payments.
What can you spend the EIDL on?
You can spend your EIDL advance, and the main part of the loan, on most business expenses.
There are a few exceptions, though. You can’t spend your EIDL on:
- Disbursements to business owners, unless they’re directly tied to services they performed
- Dividends and bonuses
- Repaying stockholder/principal loans
- Expanding facilities or buying fixed assets
- Repairing or replacing physical damage
- Refinancing debt
Also, if you qualify for the Paycheck Protection Program (PPP), you shouldn’t spend EIDL on the same expenses you cover with PPP.
How the EIDL and the PPP work together
If you qualify for EIDL, you can still qualify for PPP, and vice versa. But the two loans have different rules, and you need to be careful with how you use them together.
How the PPP is different from the EIDL
The PPP can lend your business up to $10 million, at a rate of 1% over two to five years. You can spend it on payroll, rent, mortgage interest, and utilities.
While you apply for EIDL through the SBA’s website, you need to go through a lending institution—typically your bank—to apply for the PPP.
Unlike EIDL, your PPP loan is based on your payroll expenses. If you’re self-employed, it’s based on how much you typically pay yourself.
Finally, PPP loan forgiveness makes the program especially attractive. If you qualify, you could have the entirety of your loan amount forgiven.
How to use the EIDL and PPP together
While you can receive the EIDL and PPP together, it’s important to understand how they interact.
There are two points you need to be aware of:
- You shouldn’t spend the EIDL and the PPP loan on the same expenses.
For instance, if you use the PPP loan to cover payroll for July, you’ll need to use your EIDL for a different payroll period, or a different expense entirely. Mixing the loans makes recordkeeping difficult, and could land you in trouble when it’s time to report your loan use to the SBA.
Plus, if you got your EIDL before April 3, 2020, any amount you spend on payroll will be refinanced into your PPP loan, if you apply for one.
- You can’t combine your EIDL grant advance with the PPP
No double dipping. Any grant money you received as part of your EIDL will be subtracted from your PPP loan forgiveness amount.
How to apply for the EIDL
These are the steps you need to follow to get the EIDL:
- Complete the streamlined initial EIDL application through the SBA website.
- Gather all essential documents (listed below) before completing the full application.
- The SBA will check your credit rating, then ask for additional documents, which you must provide. A loan officer will contact you through phone, email, or the online portal you used for your initial application.
- Once you’re approved, you can accept or decline the loan. If you accept, you’ll get the first disbursement within five days.
- Repayments start 11 months later.
Documents for your EIDL application
After filling out your initial application, you should be ready to provide the SBA with the following:
- Your income statement as of January 31, 2020
- Gross revenue for twelve months prior to January 31, 2020 (this will be on your annual income statement for 2019)
- Cost of goods sold for twelve months prior to January 31, 2020
- Information on any other grants you’ve received as a result of the coronavirus situation
- Bank routing information for auto-deposit (a void check)
If you don’t have income statements for the twelve months leading up to January 31, 2020, you’ll need to go back and do your bookkeeping retroactively. At this point, consider hiring a catch-up bookkeeper.
If you’re behind on bookkeeping, we recommend checking out Bench. Their catch-up bookkeeping service gets you a complete package of financial records for each year covered.
Recordkeeping for EIDL
In order to offer the EIDL and its many benefits, the government needs to make sure it’s being used correctly. For that reason, when you receive the loan, you have to abide by certain bookkeeping and recordkeeping requirements.
Your main responsibilities, as outlined in the “Books and Records” section of the EIDL agreement:
- Maintaining the most recent five years’ worth of “current and proper” financial records, from before you apply for the loan to three years after the loan’s maturity, or the date you pay it off—whichever comes first. These records include:
- Financial and operating statements
- Insurance policies
- Tax returns and related filings
- Records of earnings or dividends distributed
- Records of compensation to owners or shareholders
- Allowing the SBA to audit all books and records
- Allowing the SBA to inspect or appraise your business assets
- Providing financial statements to the SBA within three months of the end of the fiscal year
- If requested by the SBA, paying for a review of financial statements by an independent public accountant
- Allowing all state, federal, and municipal governments to provide the SBA with relevant documents upon request
How to maintain records for the EIDL
In order to comply with SBA requirements, it’s essential you have five years of accurate records. That includes a complete ledger of transactions, a list of accounts, an up to date income statement, and a balance sheet.
If your bookkeeping is spotty, or if there are gaps in your recordkeeping, you could end up in trouble in the event of an SBA audit.
Before accepting your EIDL, your best bet is to hire a professional bookkeeper. They can guarantee your books are up to date, accurate, and audit-ready. Plus, having a professional handle your bookkeeping takes a major task off your plate—so you can stay focused on keeping your business stable during the coronavirus emergency.
If you use a bookkeeping provider like Bench, they’ll continue to track your transactions and give you accurate financial statements. When you know that’s taken care of, you can focus less on staying SBA compliant, and more on using your loan to help your business.
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