Dispatch #20 - Updates to the SBA Disaster Loan Program (EIDL)
In addition to the PPP Loan Program (see Dispatch #17), the CARES Act expanded and changed the SBA Economic Injury Disaster Loan (EIDL) Program. EIDL loans are long-term, low-interest and have very favorable terms.
Steve Roth, an expert on SBA loans who works for the Northern California Small Business Development Center (SBDC) draws this conclusion: “It would be a major mistake to not apply for EIDL given these changes.”
He's also outlined the recent changes to the EIDL program, which are shared at the bottom of this bulletin.
In this fast-moving environment of much higher risk for contractors, there's a case to be made for applying for all relevant government assistance, see which loans and grant monies are approved, take the money, and then sort out potential conflicts later.
Potential conflicts include newly assumed debt throwing a company out of compliance with its bank and bonding covenants.
Sorting it out might mean using long-term, low-interest EIDL loan funds to pay off higher-interest, shorter-term existing vehicle and equipment debt. Or early repayment of the EIDL a year or two from now.
Key changes to the regulations are outlined below:
EIDL loans now can be amortized over 30 vs. 25 years to lower monthly payments.
There is NO PERSONAL guarantee for loans under $200,000.
No collateral is required for loans under $25,000.
For loans over $25,000 collateral will be required but NOT REAL ESTATE. A simple blanket UCC-1 will be filed against the business’s assets.
Interest rate will be 3.75%.
Repayment starts 12 Months from the date of the note.
Sole proprietors and Independent Contractors can apply to the EIDL program.
Loan can be used for a wide variety of business needs.
You can request a $10,000 advance as part of the new application form and, if the loan is denied for any reason, the $10,000 advance is forgiven. If the loan is made then the $10,000 becomes part of the loan.
The program is now open to non-profits who provide secular social services
If you have not already done so, consider applying (or reapply as the case may be) to get the $10,000 advance.
Apply online, get your file number, and the SBA will contact you regarding the next steps.
Steve’s been very helpful to several of our clients and is available to help other contractors in Northern California. Register at financing-simplified.com/start, then email Steve.
Need help with this or other financial matters faced by construction contractors? Let’s talk!
David Stern CFO makes every effort to provide useful and accurate information. This content, however, is not intended as a substitute for specific business-related financial advice. We disclaim all warranties and liabilities from its use.