New Economic Injury Disaster Loan (EIDL) program changes took effect September 8, 2021, in the COVID EIDL program and may relieve the burden on some small businesses by making the loan process easier to navigate and providing additional resources and flexibility in how the loan proceeds may be used.
The Small Business Administration (SBA) is changing the definition of affiliation, the eligible uses of loan proceeds, application of the size standard to certain hard-hit eligible entities; it also establishes a maximum loan limit for borrowers in a single corporate group.
Beyond the COVID EIDL program, the rule also changes which SBA official may make decisions on the appeal of an application that has been declined for a second time.
Here are the highlights of the rule’s major provisions.
Definition of Affiliation for COVID EIDL Loans
To simplify the program requirements so applicants can complete the affiliation analysis more easily, and to expand the number of entities eligible for the loans, the SBA is aligning the definition of affiliation with the definition of “affiliated businesses” set forth in section 5003 of the American Rescue Plan Act (ARPA) for the Restaurant Revitalization Fund (RRF).
This is important because as with the RRF program, COVID EIDL applicants apply directly to the SBA, without an intermediary lender to explain program rules and ensure compliance.
Eligible Entities for COVID EIDL Loans
Due to the extended duration and scope of the pandemic and the impact of mandated shutdowns and social distancing orders, some categories of business continue to suffer significant economic hardship. Additionally, some industries were identified in Section 5003(a)(4) as eligible, but may not have received funding due to program deadlines or the exhaustion of RRF funds.
Most businesses eligible for RRF are in North American Industry Classification System (NAICS) sector 72 (Accommodation and Food Services), but beverage manufacturers in NAICS sector 3121 including breweries, wineries, and distilleries were also eligible. Based on publicly available research and input from industry trade groups, the SBA believes these beverage manufacturers continue to need additional help.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act made COVID EIDL loans available to “small business concerns, private non-profit organizations, and small agricultural cooperatives as well as to businesses with 500 or fewer employees. The SBA is expanding the definition of “small business concern” to businesses in those industries that have 500 or fewer employees per physical location – an important distinction – and businesses using the per physical location eligibility standard must not have more than 20 locations.
However, that doesn’t close the door for business concerns that meet the general 500-employee size standard – here’s an example: a business with 25 locations and 15 employees per location would be eligible, because the total number of employees is 375 – below the 500-employee cutoff.
The SBA is also adopting a specific definition of “business concern” for COVID EIDL loans to cover each individual physical location for industries in certain hard-hit economic sectors, and will apply the program’s size standard at the physical location level for identified industries.
Use of COVID EIDL Proceeds
Under the original rules, COVID EIDL loan proceeds could only be used for working capital necessary to carry the business until normal operations can resume, or for expenditures necessary to alleviate the specific economic injury. It did not permit loan proceeds to be used to pay Federal debt or pre-payment of non-Federal existing debt – even if a balloon payment was due.
The SBA is expanding the eligible use of proceeds to payment of all forms of business debt, including monthly payments, deferred interest, and pre-payment of business debt (an exception is that the updated rules still do not allow pre-payment of any Federal agency-owned debt).
Maximum EIDL Loan Amounts
The revised SBA rules cap loans to a single corporate group at $10 million in the aggregate. Entities are considered part of a single corporate group if they are majority-owned, directly or indirectly, by a common parent. This limitation applies to all businesses, even those in certain hard-hit sectors that can use the per-physical location application of the size standard.
SBA Review of Declined Disaster Loan Applications
This final provision applies to all SBA disaster loan programs, not just COVID EIDL. It states that if the SBA declines an application for the second time, the Administrator, solely within their discretion, may choose to review the issue and make the final decision. (Note that this doesn’t create additional rights for applicants.)
If you have questions about the new COVID EIDL rules and whether they apply to your business or non-profit organization or would simply like to set up a free consultation with a member of our COVID-19 Advisory team, contact us. As always – we’re here to help.