When disasters strike and affect small businesses’ ability to operate, an Economic Injury Disaster Loan (known as an EIDL) can be used to provide small businesses with loans so they can pay for their necessary expenses. Traditionally, EIDL loans have been used by businesses affected by natural disasters such as hurricanes and earthquakes. However, they can also be used by businesses affected by pandemics. EIDL loans allow businesses to borrow up to $2 million at a low interest rate and can provide an initial grant of $10,000 that does not have to be paid back.
Small businesses that need economic relief through an EIDL loan should apply with the help of an experienced accountant. The accountants from the Roseville accounting firm Cook CPA Group are available and eager to provide assistance to small businesses in Roseville with their EIDL loan applications.
Understanding Economic Injury Disaster Loan (EIDL) Loans
The following information can be used by small businesses to apply for EIDL loans, which can be used to cover necessary businesses expenses in times of economic downturn during disasters.
Qualifying for an EIDL Loan
Only small businesses can qualify for EIDL loans. To be considered a small business, the business must employ less than 500 people, be organized for profit, have a place of business located in the United States or operate primarily within the United States, be independently owned and operated, and not dominant in its field on a national basis.
What Is Included in an EIDL Loan
The purpose of EIDL loans is to offer economic relief to businesses that suffer from a loss of revenue due to a disaster. Usually, EIDL loans are issued due to natural disasters (such as earthquakes and tornadoes), but they are currently being used to supply businesses with loans as they experience economic hardship in the time of the novel coronavirus.
Through an EIDL loan, businesses can receive up to $2 million to cover necessary expenses such as payroll and benefits for employees, materials and supplies necessary for supplying your goods and services, mortgage and rent, and utilities. Funds received through EIDL loans are not intended to be used for building expansion, physical repairs and improvements, long-term debt refinancing, and bonuses for employees. EIDL loans come with an interest rate of 3.75%. Repayment terms for EIDL loans can last up to 30 years; repayment can be deferred for up to one year following loan disbursement.
EIDL loans also include an advance of up to $10,000, which is meant to help businesses with immediate expenses as they wait for their loans to be issued. The amount included in this initial grant is dependent on the number of people who are employed by the small business—small businesses can get $1,000 per employee, up to 10 employees. This initial grant does not need to be repaid.
How to Apply for an EIDL Loan
To apply for an EIDL loan, small businesses can fill out an application form through the Small Business Administration. To accommodate the high volume of small businesses that are in need of these loans, the application process has been streamlined and should take no more than two hours to complete.
On the EIDL loan application, businesses will have to disclose information about their businesses and employees, which will be used to determine their eligibility for the loan. Small businesses will have to provide income statements as of January 31, 2020 and information about owners with stakes in the business that exceed 20%. (Owners with at least a 20% stake in the business will also have to disclose their criminal backgrounds and citizenship status.)
When filling out the application, businesses should take extra care to ensure that they check the box that indicates that they would like to receive their initial advance of up to $10,000. If the application is missing information that was requested, the loan cannot be processed so it’s important for small business owners to be thorough. Small business owners should also note that they face perjury charges if they include false information on their applications.
Once the EIDL loan application is completed, business owners are likely to receive their initial advance of up to $10,000. Since the demand for these loans is high, business owners should be aware that it may take a while for applications to be processed. Applications must be completed before the deadline of December 16, 2020.
How EIDL Loans are Different from PPP Loans
Small businesses can use both EIDL loans and PPP loans to fund their business in a time of economic disaster. While these two loan programs are similar, it’s important to note the differences between them. EIDL loans are intended to help businesses that have been affected by disasters; it has been available to business owners long before the emergence of the novel coronavirus. PPP loans have only been made available recently, as part of the CARES Act passed in March 2020. Businesses are able to apply for both EIDL and PPP loans for funds for their business expenses, but should note that they can’t use the funds from both loans to cover one type of expense. For example, if a business qualifies for both EIDL loans and PPP loans, the funds from only one of them can be used to cover payroll. To manage the funds from EIDL loans, PPP loans, or both, small businesses are encouraged to use the help of an accountant.
Roseville CPA For EIDL Loans for Small Businesses
If your small business is in need of economic relief through an EIDL loan, don’t hesitate to begin applying for one with the help of an experienced accountant from Roseville accounting firm
Cook CPA Group.