What to Know Before Applying for SBA’s EIDL

Dan Brogdon, lender development coach, recently reviewed the Small Business Administration’s Economic Injury Disaster Loan (EIDL) program on our Field Notes podcast.

Help our listeners understand the basics of the EIDL program. How is the program structured and who is eligible to apply?
The CARES Act expanded SBA’s longstanding EIDL program which assists businesses in regions affected by declared disasters. The first round of EIDL excluded production agriculture, but on May 4, SBA opened the EIDL application portal for agriculture producers only. Businesses with 500 or fewer employees are eligible to apply, as well as sole proprietors, independent contractors and most private non-profits.

EIDL offers loans up to $2 million to cover working capital at an interest rate of 3.75% on a 30-year term. These loans are offered directly through SBA. Payments on EIDL loans are deferred for one year and eligible applicants may also receive an emergency grant of up to $10,000 within three days of application. Emergency grants do not need to be repaid, and applicants do not need to have an approved EIDL loan to receive the grant.

While the EIDL loans seem attractive, they might not be a fit for every farm. Before signing for an EIDL loan, first talk with your lender or financial advisor. 

What should farms consider before applying for EIDL?
SBA EIDL is a program that may be useful for some farms, but there are implications that should be considered first. These items include:

• EIDL paperwork includes language about needing to obtain SBA concurrence before seeking a future advance on a senior secured credit line. It is unclear to what extent this will be enforced, but it may cause issues for farms if they have credit lines with other lenders besides SBA.
• Pledging collateral to SBA may impact your current lender’s ability to lend additional funds in the future.
• SBA consent is needed prior to any ownership transfers, so if your farm is planning an upcoming farm transition it may be impeded.

There are other impacts on EIDL are if your farm received a SBA Paycheck Protection Program (PPP) loan. The amount of your EIDL grant would be subtracted from the PPP forgiveness amount. You will also not be able to use EIDL proceeds for payroll, mortgage interest, utilities or rent since that is the intended purpose for PPP.

Are there any other thoughts you would like to share?
EIDL program is just another tool in your COVID-19 crisis toolbox. It is up to you to evaluate the details of the loan program and decide if this is the right fit for a financing tool for you and your operation. Having a conversation with your lender or financial advisor will help you make that decision.