With the COVID-19 pandemic still ongoing, the SBA has announced that beginning April 6, 2021, eligible small businesses and nonprofit organizations can apply for up to 24 months of financial relief. The limit, which was previously six months with a maximum loan amount of $150,000, has now been increased to 24 months with a maximum loan of $500,000.
Driving this new initiative is the incredible success the SBA saw with the original Economic Injury Disaster Loans (EIDL). According to SBA Administrator Isabella Cassilas Guzman, more than 3.7 million businesses employing upwards of 20 million workers benefited from the low-interest emergency loans issued in 2020.
What do small businesses and nonprofits need to know about the new EIDL relief program, and how can they apply?
This particular financial relief program provides capital to business owners and nonprofit organizations so they can pay for their operating expenses, such as overhead costs, healthcare, and fixed debt payments. Borrowers should know that unlike the EIDL Advance loans or those issued through the PPP, these loans are not forgivable.
Qualifying businesses and nonprofits can apply for loans until the end of 2021, and could potentially request additional funding after December 31, 2021.
Can borrowers increase the amount of loans for which they previously applied?
Under certain circumstances, yes. Borrowers can be eligible for an increase as long as the loan was approved prior to the week of April 6, 2021. This is dependent upon the new maximum amounts, as announced by the SBA in March.
If a borrower has submitted a new loan application or has one pending when the updated limits are put into effect, they will automatically be considered for loans over 24 months up to a maximum of $500,000.
What are the next steps borrowers should take?
There is no immediate action required on the part of the businesses and nonprofits as of right now, as long as applicants have accepted the loan as calculated per the previous guidelines. The SBA will contact eligible businesses via email as we get closer to the upcoming April start date. Borrowers will then have up to two years after the loan has been issued to request extra funding.
When do the loans have to be repaid?
The SBA wanted to extend the deferment period from the original 12-month timeline for all disaster loans issued in response to the COVID-19 pandemic. As a result, they are giving borrowers until 2022 to begin repaying those loans. However, it is important to note that the deferral details might vary depending on which year the disaster loan was issued.
- Borrowers who received their loans in 2020 will be required to make the first payment after 24 months, from the date of note.
- Borrowers who received their loans in 2021 will be required to make the first payment in 18 months, from the date of note.
Interest will accrue on the outstanding loan balance over 24 months, so the SBA is allowing borrowers to make regular payments if they choose to do so.
Since the start of the COVID-19 pandemic until March 18, 2021, the EIDL program has approved 3.75 million loans, totaling more than $200 billion. Its success has also encouraged the Senate to vote on potentially extending the PPP through May 31.
Questions? Ask our team at BradyRenner CPAs today!
Matt Brady, CPA
Image Credit: GHBA @ Creative Commons