From April 6, the SBA will be offering a maximum loan amount of $500,000 through its COVID-19 Economic Injury Disaster Loan (EIDL) program. This is a significant increase from the previous maximum of $150,000 for six months.
The SBA announced in March that new applicants for the EIDL program would automatically be considered for the new amount. The changes also include modifications to the original six-month time frame, prolonging it to 24 months. The EIDL program typically allows up to $2 million in loans, with loans being capped at $150,000 to help with the pandemic prior to this latest announcement. The interest rate for these is 3.75% for businesses and 2.75% for non-profit organizations.
The SBA has also extended deferment periods for both EIDL loans and Paycheck Protection Program (PPP) loans until 2022. For loans disbursed in 2020, this means the SBA will postpone payment of the principal and interest to two years from the loan’s origination date. For loans issued in 2021, payment will be due 18 months after the origination date.
“More than 3.7 million businesses employing more than 20 million people have found financial relief through SBA’s Economic Injury Disaster Loans, which provide low-interest emergency working capital to help save their businesses,” SBA Administrator Isabella Casillas Guzman said in the original announcement.
Data from the SBA’s Disaster Assistance Update on Nationwide EIDL Loans published in November 2020 shows that 3,645,556 loans had been approved, justifying the quote. So far, the more than $200 billion distributed so far has been used primarily to expand businesses, refinance debt, or handle payroll, accounts payable, and other bills that the business cannot cover because of the pandemic. The EIDL advances do not have to be paid back, which is welcome news for small businesses that are facing hardship due to the pandemic and are looking for much-needed loans to allow them to continue with their operations.
The Internal Revenue Service has made these non-taxable in light of the pandemic, according to IRS notice N 2021-06. Furthermore, typically tax-deductible business expenses are still deductible for the 2020 tax year, even if paid with the help of EIDL loans.