What is the Economic Injury Disaster Loan and how can it help small businesses?

July 13, 2020 : H&R Block

Editor’s Note: This article was originally published on April 28, 2020. 

The Small Business Administration (SBA) is currently accepting new applications for the Economic Injury Disaster Loan (EIDL) related to COVID-19 for all new applicants (previously, it was open to agricultural businesses only). The SBA will accept EIDL applications through December, although it’s possible funds may run out before that time.   

Starting, July 11, 2020, the SBA will no longer accept new applications for EIDL Advance loans. 

In March, Congress passed the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, a sweeping new law created to help individuals and small businesses who are suffering financially by the coronavirus pandemic. A significant part of the act is the Economic Injury Disaster Loan, or EIDL.

While this small business loan has been around for some time, the Small Business Administration (SBA) recently expanded eligibility for businesses impacted by COVID-19.

Read on and we’ll walk you through the loan’s details, its application process, and requirements so you can figure out if it’s a good fit for you and your small business. As millions of businesses have quickly pivoted into the “red” post-virus outbreak, loans such as this one could be a saving grace.

What is the Economic Injury Disaster Loan (EIDL)?

economic injury disaster loanThe Economic Injury Disaster Loan is a small business loan from the SBA. Historically, it has been used for disaster areas from non-farm, private-sector disaster losses. It is now being promoted as a key government small business loan to use for the economic effects of the coronavirus outbreak as part of the CARES Act.

How is that different from the Economic Injury Disaster Advance Loan?

That question brings up a key distinction. There is the loan itself, and also, an advance of up to $10,000. This advance feature allowed applicants to receive emergency funds quickly while their application for the EIDL was being processed. As of July 11, 2020, the SBA stopped making EIDL Advances to new applicants as it has allocated all of the $20 billion appropriated by Congress.

Who qualifies for an Economic Injury Disaster Loan? What are the requirements?

Any business, cooperative, or Employee Stock Ownership Plan with 500 or fewer employees and all sole proprietors, independent contractors, and private non-profits can apply to obtain this Small Business Administration loan.

(Some businesses with 500 or more employees may qualify. Refer to the SBA Table of Size Standards to see if your industry qualifies with a higher amount of employees.)

Before July 11, 2020, a business could have received an advance of up to $10,000 on the loan to pay for certain overhead expenses.

You can use the EIDL for:

  • Paid sick leave for employees
  • Maintaining payroll
  • Covering the increased cost of materials due to supply chain limitations
  • Rent or mortgage payments
  • Repaying unmet obligations due to revenue loss

Economic Injury Disaster Loan eligibility

To be eligible for EIDL assistance, the organizations must meet the definition and size standards of a small business and have:

  • Sustained economic injury
  • Located in a disaster-declared area

Here are some benefits of this Economic Injury Disaster Loan

The EIDL has many benefits for small business owners; just take it from Benefits.gov:

“An EIDL can help you meet necessary financial obligations that your business or private, non-profit organization could have met had the disaster not occurred. It provides relief from economic injury caused directly by the disaster and permits you to maintain a reasonable working capital position during the period affected by the disaster. EIDLs do not replace lost sales or revenue.”

Here are some specific details related to the Economic Injury Disaster Loan:

  • Borrowers don’t have to give a personal guarantee for loans under $200,000
  • Borrowers can request an advance of up to $10,000 to get paid out in three days*
  • Businesses can borrow up to $2 million
  • The advance amount is determined by number of employees at $1,000 each*
  • The SBA does not charge upfront loan fees or payment penalties for the advance*

*The EIDL Advance is no longer available after July 11, 2020.

How to apply for the Economic Injury Disaster Loan

Looking for the Economic Injury Disaster Loan application details? When the SBA is accepting applications, qualifying U.S. businesses can apply online at the SBA’s Disaster Loan Assistance website. For personalized loan application assistance, you can:

  • Call 1-800-659-2955
  • Email DisasterCustomerService@sba.gov

Can an SBA disaster loan be forgiven?

If small business owners take out a loan, they often wonder if it’s forgiven. The Economic Injury Disaster Loan forgiveness only applies to the “advance” portion of the loan. Applicants who were able to receive the advance before it was suspended will not be required to repay the advance provided, even if they’re subsequently denied a loan.

When do you receive the EIDL?

Business owners who applied for EIDL advance should have received it within three days if their application was successful. The EIDL loan process may take several weeks to complete, and exact timeframes can vary on a case by case basis.

More help with small business taxes

We know there’s a lot of uncertainty for you and your business during this time. Your business tax and accounting needs don’t have to be one of them. For hands-on guidance with small business taxes, learn more about H&R Block Small Business Services.

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