Banking and Business Monthly – August 2021

The COVID-19 Economic Injury Disaster Loan (“EIDL”) (https://www.sba.gov/funding-programs/loans/covid-19-relief-options/eidl/covid-19-eidl) has been one source of relief for small businesses and nonprofits throughout the United States. This loan has provided them with funds for normal operating expenses, allowing them to continue their regular business activity even through the pandemic.

Currently, the EIDL provides a low interest, fixed-rate, long-term loan to help overcome the effects of the pandemic by assisting with working capital to continue operation. The loan has a term of 30 years with a maximum amount of $500,000. The interest rate is fixed at 3.75% for businesses and 2.75% for nonprofit organizations, respectively.

Recently, the U.S. Small Business Administration (“SBA”) has announced its plans to increase the maximum loan amount to $2 million. Along with this increase, the SBA has expanded the permitted uses of the funds beyond working capital and operating expenses. These include business pre-payment of debt (commercial and credit card), including debt principal/interest owned by the federal government.

The amount of relief provided will be based on 24 months of the business's gross margin with a maximum amount of $2 million. Any loans more than $200,000 will require a personal guaranty by all 20% or more owners and all partners/managing members. Loans for more than $25,000 will require business collateral.

The official announcement from the SBA has been delayed from its expected August 16^th date. During this time, small businesses and nonprofits should consider reviewing the SBA COVID EIDL Facts with their advisors to better understand the current relief program, and monitor the SBA’s website for updates if and when these changes are made.

For further inquiries or questions, please contact me at smigala@lavellelaw.com or at (847) 705-7555.