SBA EIDL QUESTIONS & ANSWERS
Questions and Answers About Economic Injury Disaster Loans
Q. How may I use an EIDL?
The loan will provide you with operating funds until your business recovers. To the extent you could have made payments had the disaster not occurred, you may use the loan to make payments on short-term notes, accounts payable and installment payments on long-term notes. EDIL can not be used to finance long-term debt.
Q. How much money may I borrow?
You may request an EIDL for economic injury and operating needs, but not in excess of what your business could have paid had the disaster not occurred. Generally, the overriding criteria is to provide 6 months of working capital until normal operations can resume.
In determining your eligible amount, the SBA will look at: (a) the total of your debt obligations; (b) operating expenses that mature during the period affected by the disaster, plus the amount you need to maintain a reasonable working capital position during that period; and (c) expenses you could have met and a working capital position you could have maintained had the disaster not occurred.
The amount of your economic injury does not automatically represent the dollar amount of your loan eligibility; the SBA will evaluate the information you provide and determine the reasonableness of your loan request.
Q. Will personal financial statement be required?
Yes. The SBA must review your financial statement and one for each partner, officer, director and stockholder with 20 percent or more ownership. The SBA requires the principals of the business to personally guarantee repayment of the loan and, in some instances, to secure the loan by pledging additional collateral. A good credit history and the ability to repay is important.
Q. Must I sell assets that are not used in my regular business operations before I am eligible for an EIDL?
The SBA will review the availability of such assets to determine if part or all your economic injury might be remedied by using such assets. The business and its principal owners must use their own resources to overcome the economic injury to the greatest extent possible without causing undue hardship.
Q. If I can borrow from a bank, am I still eligible for SBA assistance?
Private credit sources must be used as much as possible to overcome the economic injury. The SBA can provide EIDL assistance only to the extent the business (and its principals) cannot recover by using its own resources and normal lending channels (the “credit elsewhere” requirement).
Q. I am a developer and I own a shopping center but the tenants are failing to make monthly rent payments? Can I apply for EIDL?
Q. What are some prohibited uses of an EIDL?
You may not use funds to pay cash dividends or bonuses, or for disbursements to owners, partners, officers or stockholders not directly related to the performance of services for the business. The SBA will not refinance long-term debts or provide working capital that was needed by the business prior to the disaster.
Q. Is collateral required for an EIDL?
Generally, a business must pledge collateral to the extent available. Occasionally, the SBA will make very small EIDLs on an unsecured basis. The SBA will not decline an EIDL request solely because available collateral will not adequately secure the loan, and a business will not be required to pledge more collateral than is necessary. The SBA may decline a loan if a business has collateral available but refuses to pledge it.
Q. How long will I have to pay off the SBA loan?
The SBA will assess your financial situation and will set loan terms based on your needs and repayment ability. The maximum maturity for disaster loans is 30 years.
Q. What kind of documentation should I be prepared to submit?
For the SBA to compare your financial condition and operating results preceding the disaster with those during and since the disaster period, you must furnish balance sheets and operating statements for similar periods of time.
Also, a 1-3-page document telling the story to the SBA loan officer is invaluable. Suggested content:
Brief overview of the business and what it does.
A description of how the cash flow generated by the business is used.
Description of the economic injury which is defined as “…the inability of a business to meet its obligations as they mature and to pay its ordinary and necessary operating expenses.”
Critical plan for business to get back on its feet.
Q. If I receive an EIDL, may I spend the loan money any way I want?
No. An EIDL is intended to help you maintain a secure financial condition until your business is back to normal. Your loan will be made for specific and designated purposes. Remember that the penalty for misusing disaster funds is immediate repayment of one and a half times the original amount of the loan. The SBA requires that you keep receipts and good records of all loan expenditures for three years following receipt of your SBA loan.
Q. May I expand my business facilities or purchase a new line of inventory with an EIDL?
No. Neither lack of profit nor loss of anticipated sales alone is enough to establish substantial economic injury. Substantial economic injury occurs only when you cannot meet current obligations because of the disaster. Indicators of economic injury might be a larger than normal volume of receivables, a lower sales volume, slow inventory turnover, and the development of delinquencies in trade payables, current accruals and debt payments.
Q. Are religious and charitable organizations eligible for an EIDL?
No. Only profit-oriented operating small businesses, small agricultural cooperatives, small aquaculture businesses and most private non-profit organizations.
Q. How soon will I know if I get the loan?
That depends on how soon you file a complete SBA loan application. The SBA loan officer assigned to your application will calculate the amount of economic injury and the working capital and other needs of your business. The SBA loan officer will have to be satisfied that you can repay the loan out of business operations with reasonable safeguards to help ensure the loan is repaid. Applications are processed in the order received, the faster the application is returned with all the needed information, the faster it will be processed. The SBA will try to decide on each application within 30 days from receipt of completed application. It is important to make sure each application is complete; missing information is the biggest cause of delay.
Q. How soon can I expect the money?
When approved, the first $25,000 comes quickly. The timeline for the remaining loan funds will be determined with the SBA loan officer assigned to the application.