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What Is An Economic Injury Disaster Loan? How Federal EIDL Loans from the SBA Work

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Table of Contents

How EIDL loans work

Fast facts about sba eidl loans, other important things to know about getting an eidl loan, sba covid eidl loan and grant programs, how to get an eidl loan.

An Economic Injury Disaster Loan, or EIDL, is a 30-year loan of up to $2 million from the Small Business Administration for small businesses that are in disaster areas and can’t pay their ordinary and necessary operating expenses. The interest rate can't exceed 4%.

How much do you need?

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We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

EIDL loans provide the working capital a small business may need if a disaster has occurred that prevents it from operating normally. A separate SBA program issues business physical disaster loans that cover property damage.

» MORE: Learn about other SBA disaster loans you might qualify for

To qualify, your business has to be in a declared disaster area. You can see the SBA’s list of declared disasters .

The SBA determines how much it will lend you and how long you have to repay the loan.

The SBA makes an EIDL loan only if it determines that you can’t get credit elsewhere.

You can get an EIDL loan as well as a physical disaster loan from the SBA if you qualify for both. The maximum combined loan amount is $2 million.

Insurance claims don’t have to be final for the SBA to approve an EIDL loan.

» MORE: Don’t qualify for an EIDL loan? An emergency loan might work instead

As part of the federal government’s ongoing response to the pandemic, the SBA offered a special COVID EIDL loan program and EIDL grant program. These programs expired Dec. 31, 2021.

The terms and rates on COVID EIDL loans were in many ways the same as those in the SBA’s regular EIDL program described above, but the loan payments are deferred for the first two years.

Under the EIDL grant program, businesses that applied for COVID EIDL loans were possibly eligible for up to $15,000 of free money, also called an EIDL advance, from the SBA. The SBA invited COVID EIDL loan applicants to apply for an advance if their businesses were in low-income areas.

There are seven steps to getting an SBA EIDL loan:

Apply. Fill out the application on the SBA website . You can also get an application in person at a local recovery center or by calling 1-800-659-2955 to have the SBA mail an application to you. Generally, owners will need to provide personal financial statements, business income statements, balance sheets and detailed information about the business’s fixed debts.

Sign IRS Form 4506-T. This is part of your application, and it gives the IRS permission to give copies of your tax returns to the SBA.

Meet with the inspector. The SBA will send an inspector to estimate the cost of damage to your business once it has your application.

Wait for a decision. The SBA says its goal is to make a decision on an application within two to three weeks. The loan decisions are communicated in writing.

Sign the paperwork. If your loan is approved, the SBA prepares and sends you the loan closing documents to sign.

Receive the money. After it receives your signed closing documents, the SBA makes an initial disbursement of $25,000 within five days.

Stay in touch with the SBA. The SBA assigns a case manager who schedules the rest of the disbursements and adjusts the loan after closing if your circumstances change.

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Qualification

Loan approval conditions.

• What's Available

Streamlined Application

Business information, business owners information, additional information, targeted eidl advance, supplemental targeted advance, you can apply for a ppp loan, too, when to expect your funds, the application process in order.

• Small Business

Applying for a COVID-19 Economic Injury Disaster Loan (EIDL) by the Dec. 31 Deadline

Applications will be accepted until Dec. 31, 2021

Time is running out to apply for the Economic Injury Disaster Loan (EIDL) and Targeted EIDL Advance available through the Small Business Administration (SBA). Applications for these offerings will be accepted only through Dec. 31, 2021 , but will continue to be processed after the deadline.

Applications for the smaller Supplemental Targeted Advance will not be accepted or processed after December 31, 2021, meaning there is no guarantee an application now will be processed in time to be considered.

Passage of the Consolidated Appropriations Act (CAA), 2021 on Dec. 27, 2020, extended the EIDL through Dec. 31, 2021, and created a new Targeted EIDL Advance program.

The COVID-19 EIDL program, originally scheduled to end Dec. 31, 2020, was extended through Dec. 31, 2021, with the passage of the Consolidated Appropriations Act (CAA), 2021 . The original EIDL Advance expired July 11, 2020, and is no longer available. The CAA did create a new Targeted EIDL Advance, but that program is only available to EIDL applicants in low-income areas identified by the SBA.

To receive a Targeted EIDL advance, you must first apply for a COVID-19 EIDL. You do not need to accept the loan or be approved for the loan to receive an advance. Once you apply for the loan, SBA will invite you via email to apply for one of the advance programs if your business is located in a low-income area.

Here's what you need to know to apply for an EIDL and information about the new Targeted EIDL Advance, in case you qualify:

Key Takeaways

• Although the original EIDL Advance program has expired, EIDLs will continue to be available through Dec. 31, 2021.
• You cannot apply for the new EIDL Targeted Advance, which is only available to select applicants in low-income communities.
• If you qualify for a new EIDL Targeted Advance, the SBA will notify you.
• You must qualify for a COVID-19 EIDL as a small business by number of employees.
• The maximum loan amount, based on economic injury suffered, is $2 million as of Oct. 8, 2021.
• Some loans approved prior to April 6 will be eligible for an increase, and borrowers will be contacted by the SBA.
• The normal EIDL application has been streamlined and should take about two hours.

To qualify for an EIDL, your business must meet the SBA definition and size standards of a small business, be located in the United States or a U.S. territory, and have suffered working capital losses due to the coronavirus pandemic.

Definition Standards

According to the SBA, a small business:

• Is organized for profit
• Has a place of business in the U.S
• Operates primarily within the U.S. or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials, or labor
• Is independently owned and operated
• Is not dominant in its field on a national basis

As well, EIDLs are open to nonprofits . Per the SBA, most private nonprofits should qualify for an EIDL. Other businesses qualifying for EIDLs include faith-based organizations and sole proprietors and independent contractors.

Size Standards

If your business (or cooperative) employs 500 or fewer people, you are likely considered a small business and therefore eligible for this program. However, the number of employees is higher for businesses in some industries. The SBA Table of Small Business Size Standards shows whether your industry allows more employees. References to alternate use of receipts (income) instead of number of employees do not apply for the COVID-19 EIDL.

Location and Business Type Standard

Because the coronavirus (COVID-19) pandemic applies to all 50 U.S. states; Washington, D.C.; and U.S. territories, virtually any small business in the United States and its territories qualifies by location.

In addition to what most people would consider a business, these standards and loan availability options also apply to sole proprietorships, independent contractors, and self-employed persons.

The following loan approval conditions reflect some relaxing of traditional EIDL stipulations:

• You can borrow up to $200,000 without a personal guarantee.
• First-year tax returns are not required and approval can be based on credit score.
• You do not have to prove you could not get credit elsewhere.
• Loans of $25,000 or less require no collateral. For loans above $25,000, a general security interest in business assets can be used. You must allow the SBA to review your business tax records.

Oct. 8, 2021

As of this date, EIDL loans up to $2 million covering two years of economic hardship are available.

What's Available

COVID-19 EIDLs are designed to provide economic relief if your business is currently experiencing a loss of revenue due to the pandemic.

As of Oct. 8, 2021, you can apply for an EIDL of up to $2 million covering 24 months of economic injury to pay expenses such as fixed debt and payroll costs. Some loans processed prior to that date may be eligible for an increase, and the SBA will notify those borrowers.

The interest rate for EIDL loans is 3.75% (2.75% for nonprofits) and the loan term can be for as long as 30 years. The COVID-19 EIDL includes an automatic one-year deferral on repayment, though interest begins to accrue when the loan is disbursed.

If you qualify for and receive a Targeted EIDL Advance, the funds you receive are fully forgivable. The amount you receive will be up to $10,000, depending on the amount, if any, you received from the original EIDL Advance program. The section below titled New Targeted EIDL Advance provides additional details on the new advance program including conditions under which you may qualify.

EIDLs are funded by the SBA, so you make your application with the SBA. For the COVID-19 version of the EIDL, the application process has been streamlined; the SBA says it should take you two hours and 10 minutes or less to complete the application.

The application starts with a disclosure section that describes the loan and states that the information collected will determine whether you are eligible. It includes a warning that if you do not provide all of the information requested, your loan will not be processed, as well as a reminder that the SBA is relying on your self-certification of eligibility to receive the advance (if you apply) and that there is a perjury penalty if you are not truthful. After verifying your eligibility on the Disclosure page, you will continue to a Business Information section.

This section is the longest and requires your income statement as of Jan. 31, 2020. It is important to note that not all answers are required. Sections marked with a red star must be filled out. If not so marked, only fill them out if they apply to your business.

Here you will need to indicate whether your business is fully owned by another business. If owned by individuals, you need to provide information on each owner who has a 20% stake in the business or more. Information requested will include:

• Home address
• Phone number
• Social Security number
• Date and place of birth
• Citizenship status

This section includes questions about criminal charges against any owners, then proceeds to submission of the application.

Also double-check your bank information to ensure a smooth process when it comes to direct deposit of your funds.

The application can be found on the SBA Disaster Loan Assistance  webpage. The application deadline, as previously noted, is Dec. 31, 2021 .

Don't confuse the new Targeted EIDL Advance with the former EIDL Advance, which is no longer available. You cannot apply for the Targeted EIDL Advance. If you qualify, the SBA will contact you.

The COVID-19 EIDL Targeted Advance is separate from the EIDL and is not related to the former EIDL Advance, which is no longer available. The Targeted EIDL Advance was signed into law Dec. 27, 2020, as part of the Consolidated Appropriations Act (CAA), 2021 and provides targeted "businesses located in low-income communities with up to $10,000 in additional funds to ensure small business continuity, adaptation, and resiliency." This program provides up to a total of $10,000 in forgivable funding to previous EIDL applicants who:

• Are located in a low-income community as defined by section 45D(e) of the Internal Revenue Code; and
• Can demonstrate a more than 30% reduction in revenue during an eight-week period beginning on March 2, 2020, or later; and
• Previously received an EIDL Advance for less than $10,000

If you meet all of the qualifications above and:

• Received no advance due to lack of available funding; and
• Have 300 or fewer employees

You may also be eligible for the Targeted EIDL Advance.

You do not need to do anything to receive these funds. If you qualify, the SBA will reach out to you via an official government email address that ends in @sba.gov. The SBA warns you not to send sensitive information to any email address that does not end in @sba.gov.

The American Rescue Plan Act authorized special additional Supplemental Targeted Advance payments of $5,000 to the hardest hit small businesses and nonprofit organizations. To qualify for this advance your business must meet additional criteria.

• The business must be located in a low-income community as defined by section 45D(e) of the Internal Revenue Code;
• Have suffered greater than 50 percent economic loss over an 8-week period since March 2, 2020, compared to the previous year; and
• Have 10 or fewer employees.

The Supplemental Targeted Advance is in addition to the $10,000 Targeted EIDL Advance, for a total of up to $15,000.

 An EIDL loan can be refinanced into a PPP loan.

SBA guidance allows you to apply for a PPP loan in addition to an EIDL, so long as you don't use the funds from each loan for the same expenses. For example, if you decide to apply for a PPP loan and use those funds strictly for payroll, you cannot subsequently use funds from an EIDL for payroll, as well.  

The minimum length of time to receive your loan funds if you are approved.

The EIDL process takes a minimum of 21 days to complete according to the SBA. Not surprisingly, the actual length of time is on a case-by-case basis, depending on whether there are questions or additional information is required.

While applications for EIDL loans and Targeted Advances will only be accepted through Dec. 31, 2021, they will be processed after that date, including reconsideration. Applications for Supplemental Targeted Advances will be neither accepted or processed after Dec. 31.

• Apply at DisasterLoanAssistance.sba.gov.
• Receive loan quote. (This does not mean you are approved.)
• Choose your loan amount up to the loan quote maximum.
• A loan officer will review your application and ask for more information if needed.
• A decision will be made and you will either be approved or your application declined.

If approved:

• You will receive an approval email from @sba.gov and asked to choose your loan amount and sign documents.
• Your loan funds will be transferred to your bank within 5–10 business days.

If declined:

• You will receive a decline email from @sba.gov.
• You can request reconsideration in writing within six months of the date of the decline.  

Small Business Administration. " Notice: COVID EIDL deadline approaching ."

U.S. Congress. " H.R. 133, Consolidated Appropriations Act, 2021. "

Small Business Administration. " Targeted EIDL Advance and Supplemental Targeted Advance ."

Small Business Administration. " Frequently Asked Questions COVID-19 Economic Injury Disaster Loan (EIDL) ."

SBA. " Does Your Small Business Qualify? "

Electronic Code of Federal Regulations. " Small Business Size Regulations. "

Small Business Administration. " Loan Details ."

Small Business Administration. " COVID-19 Economic Injury Disaster Loan Application. "

U.S. Chamber of Commerce. " A Step-by-Step Guide on How to Apply for an SBA Economic Injury Disaster Loan. "

Small Business Administration. " Responses to Frequently Asked Questions on PPP and EIDL Loans. "

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What Is an EIDL Loan? COVID-19 Disaster Loans Explained

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Whether your business was struck by the effects of COVID-19, a flood, or some other disaster, the US Small Business Administration (SBA) can help. 

Its Economic Injury Disaster Loans, or EIDL loans, offer working capital to help businesses recover from all kinds of disasters. Best of all, these disaster loans come with super-low interest rates, making them excellent loans for all kinds of businesses.

In this guide, we’ll tell you more about how the EIDL program works and how to submit an EIDL application (for both COVID-19 loans and others) so you can get the disaster assistance your business needs.

Economic Injury Disaster Loan 101

As we’ve said, Economic Injury Disaster Loans are a type of working capital offered by the SBA.

Note that EIDL loans are actually just one type of SBA disaster loan . (There are also physical disaster loans, home and personal property disaster loans, and Military Reservists Economic Injury Disaster Loans.) They’re designed specifically to help businesses weather the economic effects of a disaster.

What kind of disasters, you ask? Well, the SBA issues disaster assistance in response to many kinds of disasters, from pandemics to tornadoes to droughts.

And no matter the disaster, your EIDL loan will come with a few big perks (like pretty much all SBA loan options do). You won’t have to pay much in interest, you’ll get a long time to repay your loan, and you won’t have to meet super strict borrower requirements―all of which make EIDL loans ideal for businesses trying to get back on their feet. 

But let’s get more specific and talk about specific SBA EIDL loans.

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COVID-19 EIDL loans

Since March 2020, the SBA has offered Economic Injury Disaster Loans to businesses affected by the coronavirus pandemic.

Rates and terms

This COVID-specific loan program comes with its own rules and rates. 

COVID-19 EIDL loans max out at $500,000, which makes them smaller than some other kinds of EIDL loans.

COVID-19 EIDL loan details

Data effective 4/14/21. At publishing time, pricing is current but subject to change. Offers may not be available in all areas.

These loans come with set interest rates and fees. In this case, that means a 2.75% APR (annual percentage rate ) for nonprofits and a 3.75% APR for for-profit businesses. Either way, those rates are very, very low. (For comparison, even the best bank loans often have starting interest rates around 5%.)

Once you’ve been approved for your COVID-19 disaster loan, you get up to 30 years to repay it. Again, that’s a generous repayment term, since many business loans come with terms of 10 years or less.

Eligible loan uses

All that sounds pretty good, right? Well before you submit your loan application, remember that you have to use a COVID-19 EIDL loan on eligible expenses. 

An eligible expense would be a cost that you normally could have paid, if only the disaster hadn’t gotten in the way. These costs can include paying debts and everyday operating expenses. If you want more specifics, the SBA offers these expenses as examples:

• Employee benefits coverage
• Rent and utilities payments
• Debt payments (including loan payments)

Borrower qualifications

Still interested in an EIDL loan? Keep in mind that you have to meet a few basic borrower qualifications.

For the most part, these are pretty simple. For example, your business needs to be real, and it needs to have been around before COVID-19. You also need to be a US citizen or permanent resident.

There are some other disqualifying factors though. If you have an open bankruptcy, say, you’ll get rejected. Likewise, felonies and misdemeanors in the last five years can disqualify you. And if you owe child support (more than 60 days delinquent), that will get your application declined too.

You also have to meet some basic credit qualifications. The SBA doesn’t actually list specific credit requirements, though it has noted that the credit score required for EIDL loans is lower than the required score for other kinds of SBA loans. We’ve seen reports that the SBA is accepting scores as low as 570―which means even borrowers with poor credit can qualify.

Finally, depending on how big of a loan you want, you may have to offer up collateral and a personal guarantee. Loans over $25,000 require collateral, and loans over $200,000 require a personal guarantee .

Loan application process

If all that looks good to you, then you can go ahead and submit an EIDL application.

Unlike other types of SBA loans, EIDL loan applications go straight to the SBA itself―not through a lender. You can fill out the SBA form on its website. (Expect it to take around two hours or so.)

Remember, EIDL loan program applications are due by December 31, 2021. We don’t suggest procrastinating, though. SBA loans usually take a long time to get approved and funded, and EIDL loans are no exception. 

The SBA says you should expect the EIDL loan funding process to take at least 21 days. The sooner you apply, the sooner you can get your loan.

COVID-19 EIDL advances

We’ve told you most of the important details about COVID-specific EIDL loans, but we still need to talk about EIDL advances and grants.

EIDL Advance

For a while, the SBA was offering advances on EIDL loans. Businesses could get up to $10,000 as an advance grant. You didn’t even have to get approved for the EIDL loan to get your grant (so you could get your emergency grant money fast). And best of all, these EIDL grants didn’t have to be repaid.

Unfortunately, funds have run out for the EIDL Advance program. For most borrowers, there’s no way to get an EIDL grant anymore. Sorry to be the bearer of bad news.

Targeted EIDL Advance

The exception? Some businesses can now get a Targeted EIDL Advance. (This program was created in December 2021.) 

These funds go specifically to businesses in low-income communities. And as with prior EIDL grants, you get up to $10,000 as a forgivable advance.

If you qualify for these new targeted EIDL grants, the SBA will reach out to you directly. It’s not something you can apply for.

EIDL vs. PPP loans

Now that we’ve covered all the details about the COVID-19 EIDL loan program, you may be wondering how it compares to loans through the Paycheck Protection Program , or PPP loans.

Another type of COVID-19 relief loan, PPP loans were created by the 2020 CARES Act. These loans are designed mostly to cover payroll costs (and some other eligible expenses). They come with a set 1% interest rate, repayment terms of up to five years.

The big deal with PPP loans, of course, is loan forgiveness. PPP loans can be entirely forgiven, so you don’t have to repay them―if you use them for eligible expenses.

In comparison, EIDL loans come with higher interest rates (but still low ones!) and slightly more flexible eligible uses. But EIDL loans don’t have anything comparable to PPP loan forgiveness. You have to repay your EIDL loan in full (except for any EIDL Advance amount).

For more details on how PPP loans and EIDL loans compare, check out our guide to EIDL vs. PPP loans .

Browse hundreds of loan options, custom-tailored to your business and budget needs, from a single, simple platform.

Other types of EIDL loans

As we said earlier, COVID-19 EIDL loans are just one type of Economic Injury Disaster Loan. The SBA offers way more Economic Injury loans for many other kinds of disasters.

To qualify for these other disaster assistance loans, your business has to be in a declared disaster area (which you can check on the SBA website ). These areas are often at a state or even county level, so you will want to verify your business’s eligibility.

The specific loan details can vary from disaster to disaster, but SBA EIDL loans all follow some basic rules. They max out at $2 million, have APR of 4% or less, and give you up to 30 years to repay your loan. (Disaster loans don’t charge prepayment penalties, so you can repay your loan as quickly as you want.)

General SBA EIDL loan details

As with COVID-19 EIDL loans, you’ll have to meet some borrower requirements. Generally this means having good enough credit, being unable to get working capital elsewhere, and offering collateral for loans over $25,000.

And again, you’ll apply for these loans directly through the SBA website―not through a lender.

Economic Injury Disaster Loan FAQ

Do eidl loans qualify for loan forgiveness.

No, COVID-19 EIDL loans don’t qualify for loan forgiveness. 

If your business got an EIDL grant or advance, you don’t have to repay that amount. You do have to repay the rest of your loan though.

Are EIDL Advance grants still available?

All funds for the initial EIDL Advance program have been used. The SBA is now offering Targeted EIDL Advances to businesses in some low-income communities. If you qualify for one of these targeted advances, the SBA will let you know.

What is the maximum EIDL Advance grant amount?

EIDL Advances and Targeted EIDL Advances max out at $10,000 per business ($1,000 per employee).

The takeaway

As a small-business owner, you hope disaster won’t hit your business. But if it does, the SBA’s Economic Injury Disaster Loans can help you get through it. Eligible applicants can get working capital to help their businesses survive and recover.

And fortunately, EIDL assistance takes the form of affordable loans with long repayment terms. So while the EIDL program doesn’t qualify for loan forgiveness, it still offers a very affordable way to help your business get through.

Just remember that the EIDL application and funding process can take a while. So if you want an EIDL loan, apply on the SBA website as soon as possible.

EIDL loans are just one of the SBA’s affordable working capital programs. Learn more about other loan options in our guide to the types of SBA business loans .

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Best Practices: SBA’s Announcement for New EIDL Deferments Means 7(a) Lenders Must Continue to Address Assignment and Subordination Questions

• March 30, 2022
• Katherine D. Tohanczyn

In response to COVID-19, the Small Business Administration (“SBA”) was given the authority to make low-interest fixed-rate long-term COVID-19 Economic Injury Disaster Loans (“EIDL”) to help small businesses and other entities overcome the effects of the pandemic by providing borrowers with working capital to meet ordinary and necessary operating expenses. In order to further assist many small businesses, on March 15, 2022, Administrator Guzman announced that SBA would be extending the deferment period on EIDLs.

Whether an EIDL borrower wishes to take advantage of the additional deferment period is optional, so any borrower who wishes to make principal and interest payments may do so. Those who wish to take advantage of this new deferment opportunity will still be obligated to pay interest on the obligation.  When the deferment period ends, borrowers will be required to make regular principal and interest payments beginning 30 months from the date of the Note.

For SBA lenders looking to finance a new 7(a) loan, it is important to be aware of the existence of EIDLs and know the key issues to address. For example, an EIDL’s proceeds must be used for working capital and operating expenses in the business, so the monies could not be used as equity injection to purchase a commercial property for the business.

In addition, because EIDLs are generally secured by a lien on all business assets of the small business, 7(a) lenders would often want EIDLs to be subordinated to their 7(a) facilities. SBA has a system in place to help. In these situations, lenders should submit the form subordination request to the Disaster Loan Servicing Center as soon as possible to ensure a senior lien position can be obtained on the pending 7(a) loan.

Instead of seeking subordination, lenders may need to seek SBA’s consent on the borrower’s behalf in certain cases, such as when there is an assignment of collateral.  This is because EIDL loan documents include default language involving assignment of collateral in the note and in the security agreement.  In such instances, lenders would need to provide a letter from the “borrower” to SBA indicating that it was borrowing additional capital and providing the lender permission to seek SBA’s consent on the borrower’s behalf. SBA’s Birmingham Servicing Center is often an invaluable resource when these type of issues arise.

Finally, some borrowers may agree to assume a seller’s EIDL as part of a change of ownership. In these situations, the borrower and seller should provide the 7(a) lender with an Agreement for Assumption of Indebtedness executed by the borrower and SBA. The lender should also ensure the EIDL is included in the borrower’s cash flow analysis.

Even though the EIDL program is directly financed by the SBA to the borrower, 7(a) lenders should continue to stay informed of changes in the EIDL program and understand how they may impact future financings.

For questions regarding the SBA EIDL program and other forms of federal relief for small businesses, contact the attorneys at Starfield & Smith at 215-542-7070.

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Mergers and Acquisitions with PPP or EIDL Borrowers: Considerations for Buyers, Sellers, and Lenders

By now, most small business owners and their lenders are acutely aware of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted to provide emergency assistance and health care response for individuals and businesses impacted by the COVID-19 pandemic. Among its many provisions, the CARES Act established the Paycheck Protection Program (PPP) to be administered by the U.S. Small Business Administration (SBA), and modified SBA’s pre-existing Economic Injury Disaster Loan (EIDL) program. Since March 27, 2020, when the CARES Act was signed into law, SBA has approved over 5 million PPP loans and roughly 3.5 million EIDLs.

Given the number of participating businesses, it is hardly surprising that some borrowers are evaluating strategic transactions – including stock or membership interest sales, mergers, corporate or company reorganizations, stock or membership interest redemptions, asset sales and the like – while their PPP loans or EIDLs are outstanding. The parties to such transactions should review the terms and conditions of the subject business’s PPP loan or EIDL, as well as the applicable SBA rules and regulations, to determine if the transaction must be approved by either or both of the PPP lender and SBA.

Transactions affecting the ownership of a PPP borrower may require the PPP lender to request SBA’s approval or to notify SBA of the transaction. These potential obligations warrant attention from buyers, sellers, and lenders alike, and should be regarded as an important diligence item. 

Why is SBA’s Approval or Notification Required?

PPP loans are an outgrowth of SBA’s 7(a) business loan program, which is governed by Section 7(a) of the Small Business Act, SBA regulations, SBA Standard Operating Procedure (“SOP”) documents, and SBA Procedural Notices. While Congress and SBA established certain rules that are specific to PPP loans, many of the existing 7(a) rules also apply to the PPP loan program. SBA guidance continues to highlight obligations found in the 7(a) rules that may not have been known to borrowers or lenders in the PPP’s early days.

With regard to lenders’ servicing requirements, for example, a recent SBA Procedural Notice states that “PPP Lenders are responsible for servicing PPP loans in accordance with SBA SOP 50 57, as amended.” [1] The current version of this document, SOP 50 57 2, effective as of December 1, 2015, contains the loan servicing rules for 7(a) loans and applies to PPP loans in the absence of superseding or conflicting PPP-specific rules. [2] As discussed below, these rules may require the lender to notify SBA, or to seek SBA’s approval, of certain PPP borrower transactions.

Transactions that Require SBA Approval

SOP 50 57 2 provides that certain actions after the full disbursement of loan proceeds require SBA’s prior written approval, as set forth in the SBA 7(a) Lenders Servicing and Liquidation Matrix. One action that requires SBA approval is a “[c]hange in the ownership of a Borrower in the first 12 months after final disbursement.” [3] This requirement applies to “any adjustment to or change in the ownership of a Borrower, including a change in percentage of ownership, for 12 months after final disbursement on any loan.” [4] Given the breadth of this language, it is prudent to seek SBA’s consent to a transaction that would change any or all of the ownership interests in a PPP borrower.

The assumption of a PPP loan with the release of the original borrower also requires SBA approval. [5]

Transactions that Require SBA Notification

Other situations do not require SBA’s prior approval, but do require lenders to notify SBA. For example, the lender must notify SBA of a “[c]hange in Borrower’s legal structure.” This requirement applies to changes in legal structure that result in a change to the Employer Identification Number or Social Security Number of any obligor. [6] Parties to transactions that contemplate the formation of new entities for existing PPP borrowers should evaluate whether this rule requires the lender to notify SBA of the transaction.

Transactions that Require Lender Consent

Irrespective of any SBA approval or notification that may be required, some events may require the PPP lender’s consent. The events discussed above implicitly, if not explicitly, require the lender’s consent. But there are several other events that may constitute a default if the lender’s prior consent was not obtained. The particular events may vary by lender. Because some lenders used their own forms to document PPP loans, the restrictions on entity transfers or changes without lender consent are not uniform for all PPP loans. 

The parties contemplating a strategic transaction should carefully review the relevant PPP note, loan agreement, and any other certifications made to the PPP lender, to determine if that lender’s consent or waiver of default should be obtained. While there is no formal guidance from SBA to this effect, there is a potential risk that a borrower would forfeit its ability to obtain loan forgiveness if its PPP loan goes into default, even if the lender does not call the loan.

ECONOMIC INJURY DISASTER LOANS

Unlike the PPP, the EIDL program has been in existence for decades. The EIDL program derives from Section 7(b) of the Small Business Act and carries a different set of regulations from the Section 7(a) rules that govern PPP loans, including SBA SOP 50 30 9, effective as of May 31, 2018. EIDLs are funded and administered by SBA, without the involvement of a private lender partner. Also, unlike the relatively short-term PPP loan, an EIDL can have a loan term of up to 30 years, making it more likely that a strategic transaction involving the borrower will arise during the life of the EIDL.

In short, SBA’s approval of a strategic transaction involving an EIDL borrower is required because the EIDL loan documents say so. Specifically, the EIDL promissory note states that the borrower is in default if it “[r]eorganizes, merges, consolidates, or otherwise changes ownership or business structure without SBA’s prior written consent.” [7] That language is broad enough to cover most, if not all, transfers of ownership interests.

With respect to asset sales, whether SBA’s approval is required depends upon whether the EIDL is secured. SBA requires collateral to secure all EIDLs over $25,000. [8] Although SBA prefers real estate collateral, it often takes a blanket security interest in all of the borrower’s tangible and intangible personal property to secure an EIDL. The security agreement states that the borrower “will not sell, lease, license or otherwise transfer (including by granting security interests, liens, or other encumbrances in) all or any part of the Collateral or Borrower’s interest in the Collateral” without SBA’s written approval. [9]

Ownership or asset transfers also often involve a contemplated release or change of guarantors. Under SOP 50 30 9, the addition or deletion of a guarantor is a material change to an EIDL that requires SBA’s approval, and possibly a loan document modification. [10] Note, however, that CARES Act EIDLs under $200,000 do not require personal guarantees. [11]

Requesting Approval

The initial request for approval of any transfer or modification involving an EIDL should be made to the SBA loan officer who closed the loan. That officer may need authorization from a “Supervisory Loan Officer” for material changes, and even the SLO may need authorization from further up the chain of command at SBA. [12]

In a strategic transaction involving a small business with an outstanding PPP loan or EIDL, the buyer, the seller, the private PPP lender, and the lender financing the strategic transaction all have a stake in ensuring that SBA has been notified of and has approved the transaction, when required. As the COVID-19 crisis continues, common sense dictates, and our communication with SBA on behalf of clients has confirmed, that SBA is overwhelmed with PPP loan and EIDL requests. As such, contact with SBA on any contemplated strategic transaction cannot be an afterthought. It should be one of the first diligence tasks undertaken by the parties to the transaction, and both borrowers and lenders can benefit from engaging advisors with experience interacting with SBA.

[1] SBA Procedural Notice No. 5000-20038, Procedures for Lender Submission of Paycheck Protection Program Loan Forgiveness Decisions to SBA and SBA Forgiveness Loan Reviews (July 23, 2020), at 3.

[2] Id. , at 3 n.3 (“Because PPP loans are 7(a) loans, the SOP applies to the servicing of PPP loans, to the extent that the SOP is not superseded by or in conflict with PPP-specific requirements.”)

[3] SBA Servicing and Liquidation Actions 7(a) Lender Matrix (Version 15, April 25, 2019), at 1.

[4] Id . at 3 n. 17.

[5] Id. at 1.

[6] Id. at 3 n. 8.

[7] SBA Form 147 B at §4.

[8] SBA SOP 50 30 9, Disaster Assistance Program (May 31, 2018), at 112.

[9] SBA Form 1059 at §5.

[10] SBA SOP 50 30 9, Disaster Assistance Program (May 31, 2018), at 136.

[11] CARES Act § 1110(c)(1).

[12] SBA SOP 50 30 9, Disaster Assistance Program (May 31, 2018), at 154.

Please note: This alert contains general, condensed summaries of actual legal matters, statutes and opinions for information purposes. It is not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel. 

Please click here for additional legal updates from Williams Mullen regarding COVID-19.

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Economic Injury Disaster Loans (EIDL) (59.002)

Economic Injury Disaster Loans are available and provide working capital to help small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most private, nonprofit organizations of all sizes meet their ordinary and necessary financial obligations that cannot be met as a direct result of the disaster. Assistance is available only to small businesses when SBA determines they are unable to obtain credit elsewhere.

EIDLs provide working capital to help small businesses, agricultural cooperatives, small businesses engaged in aquaculture, and most private, nonprofit organizations of all sizes meet their financial needs that cannot be met as a result of a disaster.

Please directly consult the provider of a potential resource for current program information and to verify the applicability and requirements of a particular program.

Everything You Need to Know about the SBA EIDL Hardship Accommodation Program

COVID-19 Economic Injury Disaster Loans were a lifeline for many small business owners during the pandemic. More than 3.9 million businesses took out 30-year SBA EIDL loans at a fixed interest rate of 3.75% according to SBA data .  

Payment pauses were offered during the pandemic, allowing businesses up to 30-months to postpone making their EIDL loan payments. But those EIDL deferment periods have ended. 

Unlike Paycheck Protection Program (PPP) loans, COVID-19 EIDL program loans are not eligible for forgiveness and must be repaid. (Note that we’re talking about loans here, not grants. EIDL grants, including EIDL Targeted Grants, do not have to be repaid.) 

Some businesses are having trouble making their payments, and are required to make payments even if the business closed during the pandemic. Only loans of $200,000 or more required a personal guarantee, though. 

If you are finding it difficult to make your COVID-19 EIDL loan payments, the EIDL Hardship Accommodation Plan may be worth exploring. 

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What is the EIDL Hardship Accommodation Plan?

The U.S. Small Business Administration (SBA) is offering a hardship accommodation program for businesses that can’t make their full payments. Here’s how it works: 

• Business owners must pay at least 10% of their monthly payment amount (with a $25 minimum), for six months. Larger payments are optional. 
• After the six-month hardship accommodation period ends, borrowers must make their regular payment unless they renew their hardship accommodation plan. 

This program doesn’t stop interest from accruing, which means the balance will continue to increase. The total loan repayment term is still 30 years, and borrowers who deferred their COVID EIDL loan payments could find themselves with a balloon payment at the end of the loan term. (This SBA loan payment calculator can be useful for calculating SBA loan payments.) 

Is Your Small Business Eligible for EIDL Assistance?

If you have a COVID-19 EIDL loan—and not an EIDL loan due to a natural disaster like a flood or fire—you can request hardship assistance using the steps below. Due to the large number of loans, and the generally low eligibility requirements, it’s likely the SBA will be flexible in granting hardship assistance requests. 

How Can Your Small Business Take Advantage of the EIDL Hardship Accommodation Program

You can enroll in the Hardship Accommodation Plan beginning 60 calendar days before your first payment is due. The steps you need to take depend on your loan amount: 

Loan Amounts Less than $200,000

Login to your Capital Access Financial System (CAFS) SBA loan account at MySBA Loan Portal (lending.sba.gov). Within the portal, click “Loan Summaries” in the toolbar. On the Loan Summary page, look for “Hardship Accommodation Plan” in the bottom right corner. Click “Learn more and enroll.”

Loan Amounts Above $200,000

EIDL borrowers with these larger loans (that carry a personal guarantee) should contact the COVID-19 EIDL Servicing Center at 833-853-5638 or [email protected] (and include “Hardship Accommodation Plan” in the subject line). A loan specialist will contact you regarding requirements. 

Note the EIDL loans do not appear on credit reports, and taking advantage of this hardship program should not affect your personal or business credit . However, entrepreneurs with loans for more than $25,000 will have a UCC filing on their business credit reports . UCC filings may make it more difficult to obtain other small business loans. 

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Other Alternatives If You Can’t Pay Your EIDL Loan

In addition to the hardship assistance program, consider taking advantage of the free and low-cost counseling services available through the SBA and its resource partners like SCORE or Small Business Development Centers (SBDCs). These mentors can help evaluate your business strategy and provide assistance to help your business during challenging times. Find local assistance here . 

Nav’s Verdict 

The EIDL loan program provided vital funds to business owners during the pandemic. The combination of a low interest rate and long repayment period of 30 years means many borrowers will find this one of the best small business loans available to them, especially with recent economic conditions. 

If you are still finding it hard to pay back your EIDL loan , the SBA hardship accommodation program may provide some temporary relief from unaffordable EIDL payments, but it’s a short-term solution. Interest continues to accrue, and eventually your business will need to make those payments. 

Take advantage of other free and inexpensive resources available from the SBA to help strengthen your business, including counseling and one-on-one mentoring from SBA resource partners. 

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This article was originally written on March 17, 2024.

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Gerri Detweiler

Education Consultant, Nav

Known as a financing and credit expert, Gerri Detweiler has been interviewed in more than 4000 news stories, and answered over 10,000 credit and lending questions online. Her articles have been widely syndicated on sites such as MSN, Forbes, and MarketWatch. She is the author or coauthor of five books, including Finance Your Own Business: Get on the Financing Fast Track. She has testified before Congress on consumer credit legislation.

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Economic Injury Disaster Loan May Be Assumable

• Post author: Kim Lupardus
• Post published: July 14, 2021
• Post category: Business Tips / Selling Business

By: Jon Holbert Managing Partner

CBI Northwest Arkansas

If you took the opportunity to protect your business by obtaining an EIDL (Economic Injury Disaster Loan) during the Pandemic, you will want to continue to read this information, particularly if you’re contemplating a sale in the next year or so. Most EIDL loans have 30-year terms, interest rates below 4% and payments deferred for up to two years, although interest is accruing, and business owners should be aware of that fact.

EIDL terms are substantially better than one might expect on an acquisition loan from the SBA.

So how does that affect Sellers and Buyers of businesses?

CBI recently closed a deal on business that had an EIDL in place. In fact, they had not even made the first payment on it. The CBI Team was able to arrange for the buyers to assume the EIDL note with the same low interest, long term, low payments and deferred initial payment.  CBI may have been the first or, at least, one of the first to work this out with the SBA. This is a great deal for Business Sellers as they are relieved of that responsibility. It is also great for business Buyers since they get much better terms and a better rate than they would have had on an acquisition loan. Now that the process has been established through the SBA, we believe that we can get these loans assumed faster than a new loan can be funded. That makes it even more attractive for all parties involved.

CBI prides itself on being trailblazers in finding ways to better serve our clients. Our creativity, experience and expertise help us get more deals across the finish line. If you have a good business (with or without an EIDL) that you have decided to sell, we can find a way to get it done.  The first step is up to you, call or email today.

Call 877-582-5200 or email [email protected]

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Assumption, Assignment and Sale of SBA 7(a) Loans

https://youtu.be/mSZoxM5QVNo

You have a business with an SBA guaranteed 7(a) loan and now you are looking to sell the business.  What about the loan?  Can you simply assign the loan and have the buyer assume the loan in your sale documents without anything more?  Generally speaking, the SBA will need to approve the assumption and certain requirements must be met: 1. Unless the assumption is part of a workout or the loan is in liquidation status, the proposed assumptor must meet the applicable 7(a) Loan eligibility requirements in the most current version of the SBA’s standard operating procedures; 2. The proposed assumptor should be the primary owner of the business; 3. The proposed assumptor should have business experience and management skills that are equal to or better than the Borrower's; 4. The proposed assumptor must have a satisfactory credit history; 5. The proposed assumptor must have the ability to repay the SBA loan in full; 6. No collateral should be released; 7. No collateral should be subordinated except as otherwise provided with regard to funds that will be used to make improvements to the collateral that will maintain or increase its value; 8. The proposed assumption should not have a negative impact on the operation of the business; 9. The proposed assumption must not have a negative impact on the recoverable value of the collateral; 10. The existing collateral should be adequate to secure the loan, if not and whenever possible, additional collateral should be required as a condition for the assumption; 11. Existing Obligors must not be released without SBA’s prior written approval; 12. The terms of the assumption must be set out in a written agreement signed by all of the parties to the agreement; 13. The terms of the assumption must include a "due on sale or death" clause that prohibits any future assumption of the SBA loan; and 14. The terms of the assumption must not include a real estate contract, i.e., the seller may not retain title to the property until an agreed upon amount is paid.

If you are facing an SBA loan default, contact Protect Law Group today at www.sba-attorneys.com or 1-888-756-9969 to schedule your FREE initial consultation.

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Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.

$1,200,000 SBA 7A LOAN - SBA OHA LITIGATION

Client personally guaranteed an SBA 7(a) loan to help with a relative’s new business venture.  After the business failed, Treasury was able to secure a recurring Treasury Offset Program (TOP) levy against our client’s monthly Social Security Benefits based on the claim that he owed over $1.2 million dollars.  We initially submitted a Cross-Servicing Dispute, but then, prepared and filed an Appeals Petition with the SBA Office of Hearings and Appeals (SBA OHA).  As a result of our efforts, we were able to convince the SBA to not only terminate the claimed debt of $1.2 million dollars against our client (without him having to file bankruptcy), but also refund the past recurring amounts that were offset from his Social Security Benefits in connection with the TOP levy.

$750,000 SBA 504 LOAN - NEGOTIATED TERM REPAYMENT AGREEMENT

Clients personally guaranteed SBA 504 loan balance of $750,000.  Clients also pledged the business’s equipment/inventory and their home as additional collateral.  Clients had agreed to a voluntary sale of their home to pay down the balance.  We intervened and rejected the proposed home sale.  Instead, we negotiated an acceptable term repayment agreement and release of lien on the home.

$300,000 SBA 7A LOAN - SBA OIC TERM SETTLEMENT

Clients personally guaranteed SBA 7(a) loan balance of over $300,000.  Clients also pledged their home as additional collateral.  SBA OIC accepted for $87,000 with full release of lien against home.

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Two indicted in scheme to use stolen identities to obtain nearly 1 million dollars in fraudulent COVID-19 relief

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Date: March 21, 2024

Contact:  [email protected]

A federal grand jury returned an eight-count indictment charging two men with conspiracy to commit wire fraud, wire fraud, aggravated identity theft, and conspiracy to commit money laundering concerning obtaining fraudulent proceeds of Economic Injury Disaster Loan ("EIDL") COVID-19 loans guaranteed by the Small Business Administration.

"The pandemic is long over, but we won't quit in our mission to run down stolen taxpayer money and ensure the integrity of federal relief programs," said U.S. Attorney Michael Easley. "Those who committed COVID-19 fraud should know - we're well-resourced and we're still coming."

"Schemes to fraudulently obtain federal funds meant to provide assistance to small businesses is unacceptable," said Donald "Trey" Eakins, IRS Criminal Investigation Special Agent in Charge. "Our field office continues to follow the evidence of crimes committed to obtain Economic Injury Disaster Loans and other COVID-19 funds intended for struggling businesses needing assistance during the pandemic and bring them to justice."

According to the indictment, Tyreek Rasheed Exum, of Snow Hill, North Carolina, and Anthony Wandland, Jr., of Chicago, Illinois allegedly conspired to use over 20 stolen identities and the identities of co-conspirators to apply for EIDL and Pandemic Unemployment Assistance benefits. The indictment alleges that Wandland provided Exum with the stolen identities, and, in exchange, Exum gave Wandland a percentage of the proceeds. Each loan application submitted by Exum allegedly contain false statements, misrepresentations, and omissions related to income, employment, and claimed business entities. Exum is alleged to have signed various financial documents, including loan and security agreements, in the names of those stolen identities and then had the loan proceeds deposited into his personal bank account, nominee bank accounts, bank accounts of family and friends, and into accounts in the names of stolen identities. Exum is alleged to have exercised control over these accounts by obtaining bank debit cards and by causing nominees to transfer the fraud proceeds to other accounts controlled by him via various digital mediums such as PayPal and CashApp. Exum allegedly withdrew the cash at multiple ATMs. In total, the indictment alleges Exum received nearly $1 million in fraudulent loan proceeds. If found guilty, Wandland and Exum face a maximum of 30 years in federal prison.

Michael Easley, U.S. Attorney for the Eastern District of North Carolina made the announcement after United States Magistrate Judge Robert B. Jones, Jr. accepted the plea. Internal Revenue Service (IRS) Criminal Investigation, the Bureau of Alcohol Tobacco and Firearms, and Explosives, and the Harnett County Sheriff's Office are leading the investigation. Special Assistant U.S. Attorney Lisa K. Labresh is prosecuting the case.

On May 17, 2021, the United States Attorney General established the COVID-19 Fraud Enforcement Task Force to marshal the resources of the Department of Justice in partnership with agencies across government to enhance efforts to combat and prevent pandemic-related fraud. The Task Force bolsters efforts to investigate and prosecute the most culpable domestic and international criminal actors and assists agencies tasked with administering relief programs to prevent fraud by, among other methods, augmenting and incorporating existing coordination mechanisms, identifying resources and techniques to uncover fraudulent actors and their schemes, and sharing and harnessing information and insights gained from prior enforcement efforts. The Eastern District of North Carolina’s COVID Task Force is a part of this effort to coordinate fraud-related investigations and prosecutions in Eastern North Carolina.

Related court documents and information can be found on the website of the U.S. District Court for the Eastern District of North Carolina or on PACER by searching for Case No. 5:22-cr-00180-D.

An indictment is merely an accusation. The defendants are presumed innocent until proven guilty.

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Former New York City Transit Worker and Former New York State Court Officer Sentenced to 18 Months' Imprisonment for COVID-19 Loan Fraud

Earlier today, at the federal courthouse in Central Islip, Arthur Cornwall, a former signal maintainer with the New York City Transit Authority, and Sean Williams, a former New York State Court Officer, were each sentenced by United States District Judge Joan M. Azrack to 18 months in prison for conspiring to commit wire fraud in connection with their receipt of approximately $770,000 in small business loans under the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan Program (EIDLP).  The Court also ordered the defendants to pay $770,000 in restitution to the United States Small Business Administration.  The defendants pleaded guilty to the charge in June 2023.

Breon Peace, United States Attorney for the Eastern District of New York and Daniel Brubaker , Inspector-in-Charge, United States Postal Inspection Service, New York Division (USPIS), announced the sentences.

“Abuse of public benefits programs, particularly shameful when those defrauding the government are public servants, will not be tolerated and not forgotten with the passage of time from the darkest days of the COVID-19 pandemic,” stated United States Attorney Peace.  “ The defendants’ theft of relief money, despite holding jobs with good salaries and benefits, so they could purchase real estate, cryptocurrency and pay off credit card bills with the stolen funds, is deserving of jail sentences.  This Office and our agency partners will continue working to bring to justice those fraudsters who take advantage of a national emergency, and recover every dollar that they stole from the government .”

Inspector in Charge of the New York Division Daniel B. Brubaker said, “The sentencing today of these two defendants should serve as a clear message to anyone who schemes to steal the public’s money, Postal Inspectors and our law enforcement partners will track you down and see you prosecuted to the fullest extent of the law. What makes this case even more egregious is that the defendants were employed in positions of public trust when they stole money specifically intended for those struggling to keep their businesses afloat during the pandemic. Today is a win for the good guys and the people we protect, but the fight is far from over and we will continue to use every resource at our disposal to pursue anyone who attempts to defraud the public.”

Between May 2020 and July 2020, amid the COVID-19 pandemic, Cornwall and Williams fraudulently applied for, and received, at least six PPP and EIDLP loans, totaling approximately $770,000, on behalf of purported corporate entities they controlled.  As part of the scheme designed to mislead the SBA and a financial institution disbursing the funds, the defendants submitted supporting documentation that contained false information, including the identity of the individual applying for the loan, the number of employees, revenue, payroll costs, and the intended use of the loan proceeds. Instead of using the funds for disaster relief, Cornwall and Williams diverted them for their personal use, including the discharge of personal credit card debt and the purchase of cryptocurrency.  Following their guilty pleas, the defendants resigned from their respective government jobs.

Congress created the PPP and EIDLP as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  Enacted on March 29, 2020, the CARES Act provided emergency financial assistance in connection with economic effects of the COVID-19 pandemic.  One source of relief provided by the CARES Act was the allocation of funds for the issuance of forgivable loans to small businesses for job retention and certain other expenses through the PPP.  The PPP allowed qualifying small businesses to receive unsecured loans on favorable terms, which they were required to use for specified expenses, including payroll costs, interest on mortgages, rent and utilities.  The PPP provided for forgiveness of the loan if the recipient businesses spent the proceeds on these specified expenses within a limited time period and used a certain percentage for payroll costs.

Another source of relief provided by the CARES Act was the EIDLP, which provided low-interest financing to small businesses, renters, and homeowners in regions affected by declared disasters.  Under the program, EIDLP recipients were eligible to receive advances of up to $10,000 for small businesses within three days of applying for an EIDL (EIDL Advance).  The amount of an EIDL Advance was determined based on the number of employees working for the applicant.  The EIDL Advance did not have to be repaid.

The government’s case is being handled by the Office’s Long Island Criminal Division.  Assistant United States Attorney Bradley T. King is in charge of the prosecution with assistance from Paralegal Specialist Samantha Schroder and Legal Assistants Danielle Casey and Janelle Robinson.

The Defendants :

ARTHUR CORNWALL Age:  43 West Babylon, New York

SEAN WILLIAMS Age:  42 Valley Stream, New York

E.D.N.Y. Docket No. 23-CR-238 (JMA)

John Marzulli Danielle Blustein Hass U.S. Attorney's Office (718) 254-6323

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