Apply for an SBA EDIL or an SBA 7(a) Loan? It depends.

About $367 billion in the U.S. Stimulus package is set aside for small businesses. Here is a brief comparison of CARE Act loans compared to SBA Economic Injury Disaster Loan assistance.

DS+B Team March 27, 2020

We will continue to learn about and clarify details around the U.S. $2 trillion stimulus package in the coming weeks and months, but we know that many small business owners have financial needs now. We will attempt to answer some of your questions here about applying for an SBA Economic Injury Disaster Loan (EDIL) or exploring your options with expanded SBA 7(a) Loans as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

Here are some specific differences between the two programs.

The SBA EDIL program

  • Working capital loans up to $2 million per business
  • Interest rates not to exceed 4% per year
  • Terms up to 30 years
  • Applies to operational needs such as payroll expenses, accounts payable and fixed debt payments
  • No personal guarantee required on loans under $200,000
  • Payment deferrals up to four years
  • Options for sole proprietors

If you need money faster than is available through the EDIL application process, your business may qualify for a Small Business Disaster Bridge Loan. You can access this express loan application through an SBA approved pilot 7(a) lender in your community. This program provides bridge loan financing on an emergency basis in amounts up to $25,000, and it may be repaid with proceeds from an EDIL loan. Learn more in this SBA Express Bridge Loan Pilot Program Guide.

By speaking to a qualified and participating lender or credit union in your community, your business may also qualify for an SBA-guaranteed Paycheck Protection Program (PPP) Loan up to $10 million (2-year term at 1% interest), with payment deferrals of six months to a year as well as loan forgiveness if your business maintains payroll for a covered eight weeks at normal salary levels. At least 75% of the forgiven amount must have been used to cover payroll. Loans are available through June 30, 2020.

If you are having trouble accessing the SBA site due to high traffic, or if you have questions about the application, SBA lenders in your community can provide further guidance.

CARE Act Small Business Relief Loans (500 or fewer employees)

  • Accessed through an SBA 7(a) lender (community and other banks)
  • Up to $10 million or based on a calculation of 2019 expenses (increased from standard 7(a) loan of $5 million)
  • Interest rate is negotiable but may not exceed maximum SBA rate
  • Provision for waiving or reducing loan application fees
  • Used for Payroll support (including paid sick, medical or family leave, and costs related to continuing group health care benefits during periods of leave), mortgage payments, rent, utilities, other debt incurred before March 2020
  • Loans guaranteed between March 1 and June 30, 2020, eligible for loan forgiveness equal to the amount of maintaining payroll continuity during that time period

Payroll costs would include:

  • Compensation of an individual employee in excess of $33,333 from March 1 to June 30, 2020
  • Qualified sick leave and family leave wages allowed under the Families First Coronavirus Response Act
  • The loan-forgiveness amount couldn’t exceed total payroll costs incurred from March 1 to June 30, 2020. The amount would be reduced if the business cuts staff during that time period or reduces employee pay by more than 25 percent.

Borrowers are not allowed to double up on COVID-19-related loans. If a business received a loan under section 7(b)(2) of the Small Business Act, for example, to cover payroll related to COVID-19, it could not take a loan under the provision in the CARE Act.

State governments are also authorizing emergency financial relief, including Minnesota’s DEED Small Business Emergency Loan program. To learn more about this program, go to the Resources section in our COVID-19 Clarity Center.