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SBA Implements Major Changes to COVID Economic Injury Disaster Loan Program

(Parker Tax Publishing September 2021)

The Small Business Administration (SBA) announced major enhancements to the COVID Economic Injury Disaster Loan (EIDL) program, including an increase in the EIDL cap from $500,000 to $2 million and the implementation of a deferred payment period for small business borrowers. The last day that the SBA will accept applications is December 31, 2021. SBA-2021-0016; SBA Press Release 21-81.


Section 7(b)(2) of the Small Business Act authorizes the Small Business Administration (SBA) Economic Injury Disaster Loan (EIDL) Program. The program provides loans to eligible small businesses and nonprofit organizations located in a disaster area. On March 6, 2020, Congress deemed COVID-19 to be a disaster, thus allowing SBA to declare disasters and make EIDL loans available to small businesses and nonprofit organizations suffering substantial economic injury as a result of the COVID-19 pandemic.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. 116-136) expanded eligibility and waived certain rules and requirements for COVID EIDL loans. The CARES Act permitted SBA to waive rules related to personal guaranties on COVID EIDL loans of not more than $200,000 and the requirement that an applicant be unable to obtain credit elsewhere. It also provided SBA with the authority to approve an applicant based solely on the credit score of the applicant or use alternative appropriate methods to determine an applicant's ability to repay.

On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act (PPP Enhancement Act) (Pub. L. 116-139) provided additional funding for SBA to make EIDL loans and further expanded EIDL eligibility to include agricultural enterprises with not more than 500 employees, which are typically not eligible for SBA disaster assistance.

On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) (Pub. L. 116-260), was enacted as part of the Consolidated Appropriations Act, 2021. The Economic Aid Act (1) extended the authority to make COVID EIDL loans through December 31, 2021, (2) further modified the terms under which the SBA approves COVID EIDL loans, and (3) provided SBA authority to make targeted EIDL advances. On March 11, 2021, the American Rescue Plan Act (ARPA) (Pub. L. 117-2) was enacted, establishing the Restaurant Revitalization Fund to provide assistance to restaurants, beverage alcohol producers, and other entities.

On March 16, 2021, the SBA announced that it would extend deferment periods for all disaster loans, including COVID EIDL loans, until 2022. COVID EIDL loans made in calendar year 2020 will have the first payment due date extended from 12 months to 24 months from the date of the note. COVID EIDL loans made in calendar year 2021 will have the first payment due date extended from 12 months to 18 months from the date of the note. On March 24, 2021, the SBA announced that it would increase the maximum amount that can be borrowed under the COVID EIDL program to $500,000.

Major Changes to COVID EIDL Program

On September 8, the SBA announced key changes to the COVID EIDL program. Among the changes announced are the following:

Increased COVID EIDL Cap: The SBA will lift the COVID EIDL cap from $500,000 to $2 million. Loan funds can be used for any normal operating expenses and working capital, including payroll, purchasing equipment, and paying debt.

Implementation of a Deferred Payment Period: The SBA will ensure small business owners will not have to begin COVID EIDL repayment until two years after loan origination.

Establishment of a 30-Day Exclusivity Window: To ensure that businesses have additional time to access these funds, the SBA will implement a 30-day exclusivity window of approving and disbursing funds for loans of $500,000 or less. Approval and disbursement of loans over $500,000 will begin after the 30-day period.

Expansion of Eligible Use of Funds: COVID EIDL funds will now be eligible to prepay commercial debt and make payments on federal business debt.

Simplification of Affiliation Requirements: To ease the COVID EIDL application process for small businesses, the SBA has established more simplified affiliation requirements to model those of the Restaurant Revitalization Fund.

Application Process and Fraud Control Enhancements

In addition to the policy enhancements, the SBA said that it has invested in optimized processes and increased capacity to improve the customer service experience for applicants. According to the SBA, a revamped management team implemented new processes and performance management such as prioritizing personnel for COVID EIDL and increasing the average number of loan application decisions made. The SBA said that it has accelerated daily processing of loan increases from close to 2,000 applications to more than 37,000 applications daily. Loan officer productivity also went from 1.86 applications per day to 15 applications per day. As a result of these increased loan review rates, the 600,000+ loan increase backlog has been cleared and new applications can be processed immediately. At the same time, and to ensure taxpayer dollars are used to support businesses that need COVID EIDL funding most, the SBA has increased fraud controls and is working in collaboration with the SBA Inspector General to closely monitor the program.

According to the SBA, all business owners that have received previous loans through the SBA's Paycheck Protection Program, Restaurant Revitalization Fund, or Shuttered Venue Operators Grant can still benefit from COVID EIDL.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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