We received good news this week about the Economic Injury Disaster Loan (EIDL). Many of our clients received the email from the SBA with the offer to accept these loans. These are the most frequent inquiries regarding this loan.
What is an Economic Injury Disaster Loan (EIDL)?
- The EIDL, or Economic Injury Disaster Loan, is not the same thing as the Paycheck Protection Program (PPP) financing offered to small business owners suffering from business disruptions caused by the Covid-19 virus. The funds can be used to pay operating expenses for your business and unlike the PPP is not limited to payroll expenses.
- An EIDL is a loan of up to $2 million (though the SBA is capping the amount at $150,000 due to the high volume of applications it has received). The annual interest rate of this loan is 3.75% with term of 30 years. The first payment will begin twelve months from the date of the promissory note.
What are the requirements in the use of the loan proceeds and receipts?
- The borrower will obtain and itemize receipts (paid receipts, paid invoices, or canceled checks) and contracts for all Loan funds spent and retain these receipts for 3 years from the date of the final disbursement.
- The borrower will not use, directly or indirectly, any portion of the proceeds of this Loan to relocate without the prior written permission of SBA. The law prohibits the use of any portion of the proceeds of this loan for voluntary relocation from the business area in which the disaster occurred.
- The borrower will, to the extent feasible, purchase only American-made equipment and products with the proceeds of this loan.
- The borrower will make any request for a loan increase for additional disaster-related damages as soon as possible after the need for a loan increase is discovered.
Is there a deadline to return the loan closing documents?
- The deadline to sign and return the loan closing documents to the SBA is 2 months from the date of the loan Authorization and Agreement. If you do not sign the closing document before the deadline the SBA will cancel this loan.
Are there requirements to keep books and records?
- The Borrower will maintain current and proper books of account in a manner satisfactory to SBA for the most recent 5 years until 3 years after the date of maturity, including extension, or the date this Loan is paid in full, whichever occurs first.
- The Borrower authorizes SBA to inspect and audit any books, records, and paper in the custody or control of borrower or others relating to Borrower’s financial or business conditions. The SBA can also do an inspection and appraisal of any Borrower’s assets.
- The Borrower will furnish to the SBA, no later than 3 months, following the expiration of Borrower’s fiscal year and in such forms as the SBA may require Borrower’s financial statements.
- Upon written request of the SBA, the Borrower will accompany such statements with an “Accountant’s Review report” prepared by an independent public accountant at Borrower’s expense.
- The Borrower authorizes all Federal, State, and municipal authorities to furnish reports of examination, records, and other information relating to the conditions and affairs of Borrower and affairs of Borrower and any desired information form such reports, returns, files, and records of such authorities upon request of the SBA.
Should I take this Loan for my business?
- That is the most frequent question I have received this week. My advice is to determine if your business is in need of liquidity at this point. Did you receive PPP funds? Is there any other source of capital or loans? Are your revenues declined during this crisis?
- The other side of this loan is that you need to comply with the use of these funds and reporting requirements. You will quickly notice in the promissory note the Borrower’s certification section in the certifications you need to agree with the SBA.
If you are one of my clients, please call me before you sign this agreement to determine your particular business and personal situation.
We are here for you.
Julio & Staff Members.
Written by: Julio Jiron, CPA
