How to Apply for the Economic Injury Disaster Loan (EIDL) Program
Do you need a loan to help you survive the COVID-19 crisis?
The Small Business Administration (SBA) offers such a loan. It is called the Economic Injury Disaster Loan (EIDL) program. You can borrow money at a 3.75% interest, to be paid back within 30 years. The first payment is not due for 12 months.
You can use this money to pay yourself or pay for most business expenses.
You cannot use it for repairs or fixed assets. (Fixed assets are items such as fences, deck, and home improvements. However, you could pay yourself first and then use the money for these items.)
This is not a forgivable loan like the Paycheck Protection Program (PPP). You must pay it back.
You can apply for both the EIDL loan and the PPP. But, you can’t use the funds for the same thing.
The EIDL loan and PPP are not taxable income.
If you get this EIDL loan it will not disqualify you from applying for the PPP program.
Note: There is a new “Targeted EIDL Advance” program that I will be writing about shortly.
How do I apply for the EIDL loan?
You apply online through the SBA.
You do not apply through your bank or an online lender.
Your loan can be approved based solely on your credit score.
Fill out an online application form through the SBA. Here is a link to this form:
What happens after you apply?
The SBA loan officer will contact you. They will tell you how much you can borrow. You can decide whether to accept the full amount or something less. You can also deny accepting any money. The SBA officer will ask you for a variety of tax documents before approving your loan.
Here’s how to fill out the form.
First Screen – Eligible Entity Verification
Check the third box that says you are self-employed. If you are not self-employed, check the first box if you are a business with no more than 500 employees.
Under the section that is titled “Review and Check All of the Following,” check all the boxes.
Second Screen – Business Information
Business Legal Name: If you have a legal name, enter it. Otherwise, enter your own name.
Trade name: Enter “Family child care”
EIN/SSN for Sole Proprietorship: Enter your Employer Identification Number (EIN) or your Social Security number.
Organization Type: Choose sole proprietorship unless you are established under one of the other options listed.
Is the Applicant a Non-Profit Organization?: Enter “no” unless you are.
Is the Applicant a Franchise?: Enter “no.”
Gross Revenues for the Twelve (12) Months Prior to the Date of the Disaster (January 31, 2020): Use your gross income (this is the same thing as gross revenues for self-employed providers) from your 2020 Schedule C, line 7. If you haven’t filed your 2020 tax return, you can determine your gross income by looking at your 2020 records: monthly bank statements, check register, KidKare reports, or other records.
Cost of Goods Sold for the Twelve (12) Months Prior to the Date of the Disaster (January 31, 2020): Enter zero. You have no cost of goods. If you did enter cost of goods on your 2020 Schedule C, Part III, enter it here.
Rental Properties: Leave blank unless you own rental property (not your home).
Non-Profit or Agricultural Enterprise Cost of Operation…: Leave blank.
Compensation From Other Sources Received as a Result of the Disaster: List any funds you received from the PPP or any state grants.
Provide Brief Description of Other Compensation Sources: List other sources, if any.
Primary Business Address and other information: Complete.
Date Business Established: If you don’t remember the exact day and year, estimate it. It won’t matter.
Current Ownership Since: Put the same date as your business was established.
Business Activity: Enter “Educational Services”
Detailed Business Activity: Enter “Daycare”
Number of Employees:Enter 1 for yourself, plus any other employees you have
Third Screen –Business Owners Information
Is Your Business Owned by a Business Entity?: Answer “No”
Enter your name and phone number
Title/Office: Enter “Owner”
Ownership Percent: Enter “100”
Enter your email address, Social Security number, birth date, place of birth, check “yes” for US citizen, and your address
Fourth Screen – Additional Information
Check the appropriate boxes in the first section.
Enter the name and contact information of anyone else who helped you complete this application. This could be your tax preparer, accountant or someone you paid to help you.
Enter the name of your bank, your account number and your routing number.
Your routing number is the 9-digit number in the lower left-hand corner of your check.
The account number is the 12-digit number immediately to the right of your routing number. Don’t add the last numbers on the end of your account number that represent your current check number.
Check the box that says your application information is true.
Once you submit your application, the SBA will contact you about how much you want to borrow. They may ask you for additional information. They may ask for your 2020 tax return if filed (or if not, your 2019 tax return). You may also need a year-to-date profit and loss statement, which shows your monthly income and expenses.
If you need help in filling out this application form, you can call the SBA at 1-800-659-2955 or email disastercustomerservice@sba.gov. Whether you fill out the online application form or contact the SBA by phone or email, you may have to wait a while for your application to be processed during this crisis. This is a frustrating time for everyone, so you will probably have to be patient.
This loan program may require collateral if you borrow more than $25,000. There is no prepayment penalty. You won’t need to make a personal guarantee or provide any real estate collateral.
Note: You should be cautious about taking out any loan at 3.75% interest unless you are fully aware of the amount of interest you will have to pay over the life of the loan. Will you be in a position to make the monthly payments on the loan after the first year? Don’t get yourself into debt unless you absolutely need the loan, and you are in a strong financial position to pay it back.
Some providers use this loan as an emergency fund to be used in case of a future financial crisis. If they don’t need it within the next few years, they plan on paying it back quickly. Other providers use the loan to pay for immediate bills, such as mortgage payments, rent, food and credit card debt.
You must have been in business by January 31, 2020 to qualify for the EIDL loan.
If you previously received an EIDL loan you cannot apply for another EIDL loan.
This document was funded by the Child Care Communications Management Center, which is funded by the Office of Child Care (OCC), Administration for Children and Families (ACF), U.S. Department of Health and Human Services (HHS), and was developed in partnership with the National Center on Early Childhood Quality Assurance, which is funded by OCC, the Office of Head Start, ACF, HHS. This resource may be duplicated for noncommercial uses without permission.
Tom Copeland – www.tomcopelandblog.com
Image credit: Small Business Administration
