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Money from the SBA is still available for your business

If your business needs funds, there is relatively inexpensive money available right now.  The Economic Injury Disaster Loan (EIDL) program which is administered by the Small Business Administration (SBA) is providing loans.

The federal Paycheck Protection Program (PPP) that gave forgivable loans to businesses ended on August 8. However, PPP loans could return if Congress passes a new stimulus bill. 

Your business can apply for an EIDL even if it already received a PPP loan. However, you can’t use an EIDL to pay the same payroll costs or other expenses that you could pay with a PPP loan.

If you received both a PPP loan and an EIDL advance, your bank must deduct the advance amount from the amount of your loan forgiveness.

EIDLs are still available throughout 2020. 

Your business is eligible for an EIDL if it suffered “substantial economic injury” due to the financial effects of Covid. You qualify if your business is unable to pay its normal operating expenses or to sell or produce its goods or services. Your business revenue isn’t required to decline by any particular amount. 

Your business must also have fewer than 500 employees. Sole proprietors with no employees are eligible. 

It also requires that your business has been in operation since January 31, 2020.

The SBA is currently setting a maximum amount of $150,000 for the EIDL.

You apply for the EIDL directly from the SBA.

The SBA has a streamlined application and there is no cost to apply for the EIDL. The SBA may approve it without requiring an applicant’s tax return based solely on it’s credit score. EIDL loans are often approved without any interaction with an SBA loan officer.

The purpose of an EIDL is to cover six months of your business’s operational expenses. 

The loan amount for most small businesses is the gross revenues minus cost of goods sold (COGS) during the period from February 1, 2019, through January 31, 2020, divided by two.

If you have a service business that doesn’t have a cost of goods sold, enter “0” in the COGS line in the loan application.

Unfortunately, EIDLs are not forgivable. They are 30-year loans with a 3.75 percent interest rate. Commercial loans typically have terms much less than 30 years which makes the EIDL monthly payments lower.

The SBA doesn’t require any collateral for EIDLs under $25,000 and the first EIDL payment isn’t due until one year after you receive the loan. 

An EIDL can be used for a wider range of expenses than PPP loans and you don’t necessarily have to use it for payroll at all.

An EIDL can’t be used to replace lost sales, start a new business or to fund a business expansion.

If you are interested in receiving money from an EIDL, it is important to learn the details before applying for the loan.

David Zubler is a tax accountant and Enrolled Agent representing clients before the IRS with over 25 years of tax experience. He is the author of four tax books and is the founder and president of Your Tax Care. The company provides business and tax education to the public at its website, YourTaxCare.com. David can also be contacted by email at zublerdavid@gmail.com