The Paycheck Protection Program (PPP) has been a highly effective tool to keep small businesses afloat during the economic challenges of COVID-19. But that program stops taking applications on May 31, 2021, and according to CNBC, those funds may be exhausted before that date.
But your small business still has other options besides PPP loans, even beyond May 31.
The Small Business Association (SBA) offers several other types of loans, including the Economic Injury Disaster Loans (EIDL) program. These SBA coronavirus loans are a terrific way to rebuild your business after COVID-19, and they’ll be available well beyond May 31.
Plus, COVID-19 EIDL program loans just got a whole lot larger. In fact, the maximum EIDL amount borrowers can qualify for is now 3 times larger than the program previously allowed.
The COVID-10 EIDL program has traditionally had a maximum loan size of $150,000 with a 12-month deferment period before your first repayment. But these loans are a lot larger now, according to a late-March announcement from the SBA, and the deferment period has been extended.
“The US Small Business Administration is increasing the maximum amount small businesses and nonprofit organizations can borrow through its COVID-19 Economic Injury Disaster Loan (EIDL) program,” the SBA said in that press release. “Starting the week of April 6, 2021, the SBA is raising the loan limit for the COVID-19 EIDL program from 6 months of economic injury with a maximum loan amount of $150,000 to up to 24 months of economic injury with a maximum loan amount of $500,000.”
When they say “months of economic injury,” they refer to a filing requirement where you’re required to prove your small business has lost money over that particular duration of time. As the SBA defines it, “[s]ubstantial economic injury generally means a decrease in income from operations or working capital with the result that the business is unable to meet its obligations and pay ordinary and necessary operating expenses in the normal course of business.”
But what if your small business had already applied for the smaller loan? “SBA will reach out directly via email and provide more details about how businesses can request an increase closer to the April 6 implementation date,” the SBA says in their late-March announcement.
The SBA is also substantially moving out the deadline for when you need to start paying these loans back. Borrowers who received a COVID-19 EIDL in 2020 can now enjoy a 24-month deferment period before the first loan payment is due. Borrowers who receive a loan in 2021 will receive an 18-month deferment period before their first payment is required. This is a substantial increase from the previous 12-month deferment period.
These COVID-19 Economic Injury Disaster Loans are for businesses that can prove they’ve suffered substantial economic setbacks during the pandemic. Businesses that receive these loans have a very generous 30 years to pay them back.
You are charged interest on COVID-19 EIDL program loans, though it’s a pretty low interest rate. Small businesses are charged 3.75% interest, and nonprofits are charged a 2.75% interest rate on these loans.
But the COVID-19 EIDL application requirements have stricter criteria and documentation requirements than a PPP loan application. You are required to put up collateral for a COVID-19 EIDL program loan, and the SBA defines the collateral they ask you to put up as “machinery and equipment, furniture and fixtures, etc.”
And unlike how PPP loans can be forgiven, COVID-19 EIDL program loans must eventually be repaid in full. These are traditional loans like your small business would receive from a bank, and it is expected you pay them back in full with interest added on, even though the loan terms stretch out over as long as 30 years.
The EIDL program is not the only other form of loan available to you once the PPP loans expire. In addition to EIDL program loans, your small business can also apply for the Targeted EIDL Advance program and Emergency Economic Injury Grants (EEIG).
The new Targeted EIDL Advance Grants are designed to help BIPOC-owned businesses access funding through the current COVID-19 economic downturn. EEIG grants are grants—not loans, but full grants—for small businesses with fewer than 500 employees.
Check out our guide to SBA loans that describes the many types of loans available to your small business and how you can apply for them. But understand that EIDL program disaster loans are the variety that just got a big booster shot as Americans start to receive their COVID-19 vaccination shots.