Newburg | CPA Tax Brief (10/18/21)
As previously mentioned in our prior newsletter, the Small Business Administration (SBA) on September 9, 2021 announced updates to the Economic Injury Disaster Loan (EIDL) Program. The Program has been expanded to add more funds in response to challenges from the COVID-19 Delta Variant.
The EIDL loan increase from $500K to $2M. If you have not done so, you should definitely take advantage and apply for EIDL loan or an increase to an existing EIDL loan.
Note: SBA will begin approving loans greater than $500,000 on October 8, 2021. The last day that applications may be received is December 31, 2021.
EIDL application process
How to apply
Eligible small businesses, nonprofits, and agricultural businesses in all U.S. states and territories can apply. Visit www.sba.gov/eidl to learn more about eligibility and application requirements. The last day that applications may be received is December 31, 2021.
Increased Loan modification – Apply for an Increase to your existing EIDL Loan
Complete your request for an increase in your COVID EIDL portal
(You will need Username/email and Password from 1st Round of EIDL)
New Loan – Apply for a new EIDL Loan (if you do not have an existing EIDL loan)
Complete your online COVID EIDL application.
Loan Program Updates
- Maximum Loan Amount – loan cap increased from $500,000 to $2 million
- Note: SBA will begin approving loans greater than $500,000 on October 8, 2021
- Uses of Proceeds
- Working capital to make regular payments for operating expenses, including payroll, rent/mortgage, utilities, and other ordinary business expenses, and to pay business debt incurred at any time (past, present, or future) and payment of federal debt
- See FAQs below for further clarification payments of business and federal debt. This change lifts the prior restrictions of only using proceeds on working capital
- Loan Term – 30 years loan and Interest will accrue during this time at the established fixed rate of 3.75% (Private nonprofit organizations: 2.75% fixed)
- Collateral – Required for loans greater than $25,000
- Personal Guaranty – Required for loans greater than $200,000
- Payment Deferment – Payments can be deferred up to 24 months (during which interest will accrue), and payments of principal and interest are made over the remaining 28 years. No penalty for prepayment.
- Affiliation requirements simplified to an affiliate is a business that you control or in which you have 50% of more ownership
- Developed additional path to meet program size standards for businesses assigned a NAICS code beginning with 61, 71, 72, 213, 3121, 315, 448, 451, 481, 485, 487, 511, 512, 515, 532, or 812
To obtain a loan via COVID EIDL, small business owners must meet the eligibility requirements outlined in Section 2 of the FAQS
Additionally, below are the credit score requirements:
o $500,000 or under: 570
o greater than $500,000: 625
Small businesses must qualify for a certain loan amount by completing the economic injury formula which takes into account two years’ worth of revenue and cost of goods sold to produce an eligible loan amount.
Review Section 2 of the FAQS and Intake application form checklist for more details.
Frequently Asked Questions:
1. Can the EIDL loans proceeds be used to refinance existing debt and/or pay off federal loans (EIDL loans, SBA backed loans, or any other federal loans)? With a recent change made by the SBA, EIDL Loan proceeds may now also be used to pay:
- Commercial debt – Pay and/or prepay commercial debt obtained through traditional lenders (i.e. monthly payments of principal and interests (past, present and/or future), payments of deferred interest, pay down the entire outstanding balance of a commercial loan)
- Federal business debt – Pay monthly scheduled payments of principal and interests only on Federal business debt. (The loan proceeds cannot be used to pay off federal loans or loans backed by the SBA or federal movement greater than the monthly payments. The SBA isn’t a traditional lenders or financial institution as they are a part of the government)
- Note: Qualifying debt payments include debt incurred both before and after submitting the loan application.
2. How long does approval take? Estimated timeline: approximately 3 weeks for Loans less than 500,000 and 6 weeks for Loans greater 500,000
3. What will happen after the deadline passes if submitted for increase? The application deadline and covered period have been extended until Dec. 31, 2021. Applications in the Re-sizing (requesting increase) or reconsideration process prior to the deadline will continue to be processed.
4. Do separate applications need to be filed for each location? The way you apply is determined by how you file your federal tax returns.
5. I have a business partner, but he/she does not want to be included on the COVID-19 EIDL application. Can I still apply? All owners who own 20 percent or more of the business are required to be included on the application and at least 81 percent ownership needs to be accounted for on the application in order to be considered.
6. I have multiple businesses. Can I submit multiple COVID-19 EIDL applications? Yes, you can submit one application per eligible business. However, at least 81 percent ownership for each business needs to be accounted for on the application.
7. Can I sell my business after I receive the COVID EIDL loan? It’s possible for someone to assume your COVID EIDL loan. There are also circumstances where you would be required to repay the loan in full upon sale of your business. Please see SBA SOP 50 52 for more information.
8. Can I request reconsideration after the deadline? Yes. An applicant has up to 6 months after the date the application was declined to request reconsideration, even if the application deadline of Dec. 31, 2021 has passed.
9. Can I apply for the COVID-19 EIDL if I already received a PPP loan? Yes. Borrowers can apply for both the PPP and EIDL, although funds from both cannot be used for the same purpose.
What is the process to request an increase?
1. Login into SBA Portal COVID EIDL portal
2. Select the button “Request an Increase”
3. Submit additional paperwork (you will be able to download these forms from the portal)
- Form P-022- Standard Resolution
- SBA Form 2202- Schedule of Liabilities
- SBA Form 413 – Personal Financial Statements
- List of Real Estate Owned
- Form 4506T – Make sure business address 4506T match address used on 2019 tax return
For more details – see below links
Reminder: The last day that applications may be submitted are December 31, 2021, but the SBA recommends filing applications as soon as possible.
Here at Newburg CPA, we can help you navigate the complexities of the EIDL Program. We have a specialized COVID-19 Response Team that can work collaboratively with you to ensure that you are maximizing the opportunities the SBA is offering.
Please contact 781-884-4100 or firstname.lastname@example.org should you require assistance.