Due to the disruption of small, medium, and large sized businesses in the wake of the COVID-19 response, the Small Business Administration is offering Economic Injury Disaster Loans. These loans are working capital injections that aim to help business owners pay debts, meet payroll, accounts payable, and any other overhead that is disrupted due to COVID-19. These loans are not to replace profit but to keep the businesses alive until the dust settles. While these loans are being offered to all small business owners, the qualifications can be high, and the process to be approved can be long. Here is how to qualify for an SBA Economic Injury Disaster Loan.
What is an SBA Economic Injury Disaster Loan?
The Small Business Administration (SBA) has a program offering low-interest fixed-rate loans to small businesses that provide up to $2 million based on applicant strength called an Economic Injury Disaster Loan or EIDL. These loans are being offered on a much larger scale than normal due to COVID-19 and the reach of those impacted by COVID-19.
Who is eligible for an SBA Economic Injury Disaster Loan?
These Economic Injury Disaster Loans (EIDLs) are available to small businesses, small agricultural cooperatives, and most nonprofit organizations that are located in a declared disaster area. Here is a list of the declared disaster areas. Your business must be directly affected by the disaster, and you must be able to qualify for this type of loan. Directly affected is defined as:
Businesses directly affected by the disaster
Businesses that offer services directly related to the businesses in the declaration
Other businesses indirectly related to the industry that are likely to be harmed by losses in their community (Example: Manufacturer of widgets may be eligible as well as the wholesaler and retailer of the product.
These qualifications are based on credit history, ability to repay, and eligibility related to loss of profit due to the disaster rather than an economic downturn. Below, we will dig into the individual criteria for loan approval.
SBA EIDL Approval Criteria
- Credit History
What are the SBA EIDL credit history requirements?
First, the SBA evaluates your credit history. This history must be acceptable to the SBA, but they look at extenuating circumstances if you can prove that your credit history is poor due to the COVID-19 pandemic. There is technically no hard minimum credit score requirement for an SBA loan, but credit scores are expected to be 640 and above.
What are the SBA EIDL repayment requirements?
When evaluating an EIDL application, the SBA looks at multiple financial documents from your business to determine your repayment eligibility. The term length of EIDLs cap out at a maximum of 30 years, but terms are determined on a case-by-case basis off the ability of each applicant’s business to pay. In order to prove your ability to repay the SBA requires paperwork.
What sort of paperwork do I need to send for EIDL applications?
Paperwork from your business is used to evaluate the eligibility and ability to repay the loan. This paperwork can include items like federal tax returns, 3 years business financial statements, a personal financial statement dated withing 90 days of submission, year end profit and loss statements, business license, personal resume, balance sheets, and operating statements. When applying for an SBA loan, you must complete the necessary SBA forms like the SBA loan application for small businesses or sole proprietors, IRS Form 4506T (for the applicant, principals, and affiliates), SBA Form 2202 or schedule of liabilities, and SBA Form 413 or personal financial statement.
How much funding is offered through an SBA EIDL?
EIDLs offer loans up to $2 million depending on the specific documented needs of your business. The rates associated with these loans are fixed at 3.75% for small businesses and 2.75% for nonprofits. The loan repayment terms vary and are based on the financials submitted by your business as well as the loan amount. Unsecured loans are capped at a maximum of $25,000. All other loans will require some asset or collateral pledged by the approved applicant.
How long does an EIDL take to process?
After meeting all SBA requirements of approval and submitting all required paperwork for an EIDL, the applicant then must wait to be contacted by the SBA on the approval or denial of the loan request. The SBA tries to complete the underwriting and approval decision within 21 days if all paperwork requirements are submitted and there are no mistakes in the application. Any missing information from the applicant during the submission process will lengthen the process.
SBA EIDL Advance Payment
The SBA is offering up to $10,000 of funding within 3 days. To opt in to this emergency “grant” you must check the box at the end of the application stating you would like to be eligible for that. This option states, “an applicant shall not be required to repay any amounts of an advance provided under this subsection, even if subsequently denied a loan under section 7(b)(2) of the Small Business Act.” This means your business will still be evaluated to determine the amount of fast funding, but the funding will not exceed $10,000. There are still guidelines for how the payment must be used. The “advance payment may be used for providing paid sick leave to employees, maintaining payroll, meeting increased costs to obtain materials, making rent or mortgage payments, and repaying obligations that cannot be met due to revenue losses.”
How to Apply to an SBA EIDL:
The SBA accepts both online and paper applications. The online application and more information can be found here: https://disasterloan.sba.gov/ela/Information/EIDLLoans
What can you do if you do not qualify for an SBA EIDL?
Whether your business is too new, has poor credit, or you do not have the financial statements at the ready for EIDL approval, you do have other options for small business funding during the COVID-19 pandemic. SBA Economic Injury Disaster Loans offer low rates to small business owners, but the time for application and approval can be discouraging to many small business owners that need fast funding to stay afloat. 75% of business owners report having 28 days or less of cash reserve. This means that 75% of business owners may not have the time to wait for SBA approval even if they submit all their paperwork correctly within a day. For all of the benefits of an SBA EIDL, the loan is typically not coming any faster than a month.
Invoice Factoring Business Funding During COVID-19
Invoice factoring is an alternative business funding method. What this means is that instead of going through a bank or government channel looking for business financing, you can apply to Eagle Business Credit for business financing.
Invoice factoring is an advance on your receivables. This means that instead of waiting for your customer to pay on credit terms for your goods or services, you get the money owed the same day you deliver the goods or services from Eagle. We take a fee typically between 1 and 4% of the invoice value, and then we wait the credit terms to collect from your customer.
Approvals are NOT based on credit score. Instead we base approval decisions on the strength of your business and receivables. This means that new businesses, small businesses, and businesses or owners with poor credit ALL QUALIFY for our business funding. Invoice factoring is DEBT-FREE and requires NO REPAYMENTS. The money is yours. We just get it to you faster.
Applications are fast and do not require a mountain of paperwork. What we really want to see is a grasp of your invoicing practices and proof of business ownership. Our team is made of real humans that answer your calls, text, emails, webchats, and everything in between. If you want to apply completely online, we have an online application process available. If you prefer talking to people, we have an excellent team of professionals that can help you. The status of your application and account is available for free 24/7 on our online portal.
Once established with Eagle for funding (this can be as fast as a day or typically within a couple days) you have free same day funding. This means you can submit your invoice in the morning and be paid within the next hour. We work fast. We work affordably. And we work to help your business stay afloat with the stronger cash flow as a result of our factoring services.
If you cannot afford to wait for SBA EIDL approval or you simply cannot qualify but you need funding now, give us a call at Eagle. We will answer any questions that you have without any obligation from you. We offer fast business funding without hurting your cash flow. You can meet payroll, overhead, and supply costs by having stronger cash flow and no repayments to make.