If your small business has been able to procure a loan through the SBA program, you may be wondering whether your loan qualifies for a forgiveness program.
In this guide to understanding SBA Disaster Loans and other economic relief, we'll break down the two loan programs, the criteria for each, any active loan forgiveness programs, and the procedure to apply for both.
Understanding the Programs: EIDL and PPP
The two SBA loan programs that are specific to disaster relief, meaning the business would otherwise function as usual had there not been a catastrophic event, are the EIDL and the PPP Program.
SBA Disaster Loan: EIDL
The Economic Injury Disaster Loan (EIDL) is government-funded, and it provides funding with a limit of $2 million for small businesses that are overcoming obstacles related to decreased revenue.
The economic disaster loan funds are for nearly all business-related purposes such as benefits, payroll, rent, buying materials, vendor payments, utility payments, etc.
Here's a list of what the borrower can't use the SBA disaster loan for:
- Employee bonuses
- Business expansion
- Refinancing Debt (Long-term)
- Property repairs
The interest rates for the disaster loan for small businesses and nonprofits are 3.75% and 2.75%, respectively. The term of repayment for the EIDL can be as long as 30 years, but it depends on your business's ability to pay the loan back.
Your first SBA loan payment gets deferred for one year; however, interest will still accrue. The borrower is allowed to make pre-payments if they want, without facing any penalties.
Do You Have to Pay Back SBA Disaster loans?
In short, yes, just perhaps not fully; you have to pay back the SBA disaster loans, but if you're eligible to receive the EIDL grant maxing out at $10,000, that portion is tax-free and eligible for forgiveness. The first round of these funds began in March 2020 and was used up by July 2020.
During the second bill passed for Coronavirus economic relief, a revived program for the SBA EIDL grant began. This award is now called the "targeted" EIDL advance, and the funds are available but with stricter requirements.
Small businesses must be located in a low-income community, and borrowers had to have previously applied for the first EIDL advance. They could've obtained partial funds or none at all due to the funding being already fully distributed.
There are no instructions on applying for an EIDL grant because the government allocated all funds during the first round of Coronavirus Relief loan programs based on the company's number of employees. With the new targeted EIDL grant, those who previously applied for the original EIDL loan will be considered for the latest round of funds available.
The SBA has already started that they would be actively contacting those applicants that were eligible, and therefore no further action is required.
You can check your EIDL loan status by phone, email, or online, using the following contact information:
SBA Disaster Loan: PPP Program
The Payment Protection Program is another SBA COVID loan available to small businesses to help keep their employees on the payroll during the Covid crisis. These loans are offered by approved lenders such as banks, credit unions, etc., that the SBA approves, but the government backs them to reduce risks.
Understanding the Paycheck Protection Program
If you're applying for the PPP loan for the first time, then you can receive up to $10 million. If this is your second time applying, then your loan maxes out at $2 million.
You can calculate the amount of your loan by multiplying the total average of your monthly payroll payments by 2.5. Check here for specific information on the dates that are eligible for consideration.
If your small business falls under accommodation or food services, you'll multiply your payments by 3.5 instead.
All businesses that are seasonal may select any period of 12 weeks as long as it's between mid-February 2019 and mid-February 2020. These companies will also multiply their payments by 2.5
The PPP offers loans that are forgivable to small companies to cover 24 weeks of expenses that are both payroll (60% of the loan) and non-payroll (40% of the loan) related.
Forgiveness criteria for first and second-time applicants:
- Compensation and employees remain the same
- Loan funds used for eligible payroll expenses
- A minimum of 60% of loan funds went toward payroll expenses
These are the payroll expenses that are eligible for forgiveness:
- Local and state taxes
- Commissions, tips, wages, salaries (maximum of $100,000 for every employee)
- Benefits for employees (sick leave, health insurance, vacations, etc.)
These are the non-payroll expenses that the SBA won't forgive:
- Property damage
- Interest for mortgage payments
- Protection expenses for workers such as safety equipment
- Essentials needed for business operation
- Operation expenses such as software and other devices.
You cannot apply for a PPP loan if you were not in operation by February 15, 2020.
You can apply for both SBA coronavirus loans simultaneously, but you can't use the funds for the same purpose.
Loan Forgiveness and Payback Programs
Remember that there aren't any EIDL loan forgiveness programs available. You may be eligible for a grant, but the SBA will determine that, and they'll contact you directly after consideration.
To obtain SBA economic injury disaster loan forgiveness for the PPP loan, the borrower may apply after using all the funds they received. The borrower is eligible to apply up until the date of maturity for the loan. If forgiveness for the loan is not sought after by the ten-month mark following the expiration of the covered period, the borrower cannot defer the loan payments.
About the Author, Madison Taylor
Madison Taylor is the Brand Ambassador at ROK Financial. She is responsible for raising brand awareness and business relationships with business owners across the country. Madison loves that she plays a small role in getting Business Back To Business Through Simple Business Financing and looks forward to hearing what you think about the blogs she creates! Madison has been working in the financial space for six years, and loves it! When she is not at work, you will find her at home learning a new recipe to test out on her family or going on new adventures with her friends.