Locke Lord QuickStudy: Saving Our Small Businesses: CARES Act Expands Economic Injury Disaster Loan Program to Provide Additional Financial Relief to Small Businesses

On Wednesday, March 25, 2020, the Senate passed the Coronavirus Aid, Relief and ‎Economic Security Act or the “CARES Act”, which is expected to be approved by the House of ‎Representatives as soon as Friday, March 27th. As reported in our QuickStudy Saving Our Small ‎Businesses: Congress Reaches Agreement on New Forgivable Paycheck Protection Loans to ‎Small Businesses, the CARES Act provides substantial relief to small businesses with the ‎establishment of the Paycheck Protection Program, appropriating $349 billion worth of 7(a) loans ‎to be approved and issued by lenders authorized by the Small Business Administration (“SBA”) ‎and the Treasury. ‎

The Paycheck Protection Program is not the only option available to small businesses ‎seeking financial relief from the effects of COVID-19. The Economic Injury Disaster Loan ‎‎(“EIDLs”) program operated by the SBA is an alternative program that should also be considered ‎when small businesses are assessing their borrowing options. We first reported on the availability ‎of EIDLs for businesses impacted by COVID-19 in our QuickStudy Saving Our Small ‎Businesses: SBA Disaster Assistance Loans for Small Businesses Impacted by COVID-19. This ‎QuickStudy is intended to supplement this initial report with the expansions made to the EIDL ‎program under the CARES Act. Interested parties should refer to our previous QuickStudy for a ‎more general overview of the EIDL program and the standard loan terms associated therewith.‎

During the “Covered Period” beginning January 31, 2020 through December 31, 2020, in ‎addition to small business concerns, private nonprofit organizations, and small agricultural ‎cooperatives previously eligible to receive EIDLs under the program, any (1) business, (2) ‎cooperative, (3) ESOP or (4) tribal small business concern with 500 employees or less are able to ‎obtain EIDLs under Section 7(b)(2) of the Small Business Act (the “Act”).‎¹  The total amount ‎appropriated to the expanded EIDL program under the CARES Act is $10 billion.‎²

EIDLs issued during the Covered Period for COVID-19-related purposes are afforded ‎certain special treatments to make aid more widely available and easier to administer, similar to ‎those made under the Paycheck Protection Program. Namely, the CARES Act waives the ‎requirements (1) that an applicant has been in business for at least one year prior to the disaster³‎, ‎‎(2) that the applicant is unable to obtain credit elsewhere, and (3) that, for advances and loans of ‎‎$200,000 or less, personal guarantees must be made.⁴

Additionally, the SBA has the authority to approve an application based solely on the ‎credit score of an applicant without submission of the applicant’s tax return, or through ‎‎“alternative appropriate methods to determine an applicant’s ability to pay.”‎⁵

Applicants under particularly dire and immediate financial hardship can also take ‎advantage of the “emergency grants” authorized pursuant to the CARES Act.‎^6‎ Eligible entities ‎can request an advance on their EIDL in an amount not greater than $10,000 to be received by ‎the applicant within three (3) days upon the SBA’s receipt of the application/request.⁷ ‎ Applicants ‎wishing to obtain an advance will need to submit a self-certification that it is an entity eligible to ‎receive the EIDL under penalty of perjury^.‎8 Advances provided may be used for any allowable ‎purpose under Section 7(b)(2) of the Act , including providing paid sick leave related to COVID-‎‎19, maintaining payroll, meeting increased costs to obtain materials due to supply chain ‎interruptions, making mortgage and rent payments, and repaying outstanding obligations.⁹

Applicants will not be required to repay any portion of the $10,000 emergency grant ‎made under the CARES Act EIDL program, even if the applicant is not approved for an EIDL ‎with the SBA. ‎

If the applicant receives an advance under the EIDL program and is subsequently ‎transferred into, or approved for, a loan under the Paycheck Protection Program, the advance ‎amount will be reduced from the forgiveness amount available to the borrower under the ‎Paycheck Protection Program for payroll costs made pursuant to Section 7(a) of the Act.¹⁰ 

Your regular Locke Lord contact and the authors of this article would also be happy to ‎help you navigate these new SBA programs. In-person applications at a disaster center or by mail are also accepted, ‎although we do not know if the states will have sufficient resources to attend to in-person ‎requests.^{‎11 ‎}

Questions related to the program can also be directed to the SBA disaster assistance ‎customer service center at 1-800-659 (TTY: 1-800-877-8339) or ‎disastercustomerservice@sba.gov.‎

Please visit our COVID-19 Resource Center often for up-to-date information to help you ‎stay informed of the legal issues related to COVID-19.‎

---

_{1 Id. at § 1110(b).‎
2 Id. at §1110(e).‎
3 This waiver does not apply to businesses not in operation on January 31, 2020. See id. at § 1110(c).‎
4 Id.‎
5 Id. at § 1110(d).‎
6 Id. at § 1110(e).‎
7 See id.‎
8 Id.‎
9 See id.
10 See id.‎
11 Three Step Process: Disaster Loans, U.S. SMALL BUSINESS ADMINISTRATION ‎(last visited: March 26, 2020).‎}