Last week, President Biden announced an executive order aimed at accelerating the country’s path out of the pandemic. There are three elements in the “Protecting Our Economic Recovery” portion of the plan, each of which is expected to be fleshed out more in the future.
The most notable change is an increase in the maximum amount of funding small businesses can borrow through the COVID Economic Injury Disaster Loan (EIDL) program, from $500,000 to $2 million. This program provides long-term loans from the Small Business Administration at low interest rates – 3.75% fixed for businesses; 2.75% for private nonprofits – that can be used to hire and retain employees, purchase inventory and equipment, and pay off higher-interest debt. Payments can be deferred for up to two years (interest accrues) and repayments can be made over 30. There is no penalty for prepayment. Small businesses looking to take advantage of the enhanced loan program can apply immediately through SBA’s website. The deadline for applications is December 31, 2021.
Also included in the executive order is a renewed commitment to simplify the process of PPP loan forgiveness. The President’s plan should make it easier for more than 3.5 million PPP borrowers with loans of $150,000 or less to get their loans wiped clean. Under the new streamlined approach, the SBA will send a pre-completed application form to the borrower to review, sign, and return.
More details on the EIDL program:
- Eligibility requirements are straightforward. Entities must have been in operation on or before January 31, 2020, be located in the United States, meet standards for size and type of operations, and must have suffered working capital losses due to the COVID-19 pandemic, among others.
- Loans of more than $200,000 require a personal guarantee and loans of more than $25,000 require collateral.
- How to calculate your new maximum eligible loan amount:
(2019 gross receipts or sales) – (2019 costs of goods sold) x 2, or $2,000,000, whichever is lower (note that through October 8, 2021, the maximum loan amount is $500,000). For applicants that began operations partially through 2019 or 2020, the SBA will calculate the maximum eligible loan amount.
- Targeted companies in low-income communities that have more than 300 employees and suffered a revenue decline of more than 30% can receive an advance of $10,000. A supplemental advance, of an additional $5,000, is available for low-income-community companies with more than 10 employees that suffered a revenue decline of more than >50%.