How Economic Injury Disaster Loans Can Help Your Business (2024)

Running a business involves extensive financial commitments under normal conditions, but a natural disaster or other incidents can put even more strain on operations. An Economic Injury Disaster Loan (EIDL) can provide much-needed financial assistance to businesses operating in declared disaster areas. Interest rates on these loans are capped by the U.S. Small Business Administration (SBA), and borrowers receive guidance from a dedicated caseworker.

What Is an EIDL?

An EIDL is a type of SBA loan available to businesses that are located in declared disaster areas and unable to cover operating expenses. Funds are available up to $2 million and are repaid over a period of up to 30 years. Interest rates are capped by the SBA and cannot exceed 4%.

These features—combined with a fast and flexible application process and access to a dedicated case manager—make EIDLs an affordable and accessible way for businesses to stay afloat in certain emergencies.

How EIDLs Work

Business owners who operate in a declared disaster area may be eligible to receive a loan of up to $2 million under the EIDL program. Past declared disasters have included events like tornadoes, severe storms, droughts, wildfires, flooding and oil spills. The SBA also created the Covid-19 EIDL in response to the Covid-19 pandemic, though the program has since expired.

Prospective borrowers can apply for an EIDL online, via mail or in person. However, they must meet eligibility requirements beyond those established for other SBA loan programs. For example, EIDL application approval is subject to an inspection of the business to determine the extent of the damage caused by the disaster. Applicants also must provide access to their tax returns and other financial documents.

It typically takes about 21 days to get an approval decision. If a borrower is approved, they’ll need to sign the closing documents before receiving their funds—usually within another week. Funds can be used to cover expenses like payroll, rent, and working capital, as well as to continue healthcare benefits, pay for utilities and cover fixed debt payments.

SBA Covid-19 EIDL Program

In addition to the standard EIDL program, the SBA offered business owners a Covid-19 EIDL program and an EIDL grant program that expired December 31, 2021. These special programs were designed to assist business owners who were negatively impacted by the Covid-19 pandemic.

Loans were available up to the maximum EIDL amount—$2 million—but borrowers in low-income areas also were eligible for up to $15,000 in an EIDL Advance that did not require repayment. Covid-19 EIDL borrowers also benefited from loan payments deferred for the first two years of borrowing.

EIDL Details

These are the primary features of the SBA’s EIDL program:

Loan Amounts

Qualified EIDL borrowers can access funds up to $2 million. However, the loan amount a borrower is ultimately approved for depends on the amount of actual economic injury the company sustained as a result of the disaster. Loan amounts are also based on the borrower’s financial needs independent of property damage sustained by the business.

Interest Rates

The SBA caps interest rates for EIDLs at 4%. EIDL rates are currently set at 3.75% for businesses and 2.75% for nonprofits.

Loan Terms

EIDL loan terms extend up to 30 years. That said, the exact repayment term is determined by the borrower’s ability to repay the loan.

Additional Costs

EIDL borrowers are not on the hook for any prepayment penalties or other fees.

Collateral Requirements

Collateral is only required if the loan amount exceeds $25,000. Loans between $25,000 and $200,000 must be secured, but the collateral can be any assets with a value equal to or greater than the total loan amount. Loans over $200,000 require the borrower to pledge a primary residence as collateral.

EIDL Requirements

The SBA imposes eligibility requirements on potential EIDL borrowers to ensure they have sustained economic injury and that those injuries were the result of a declared disaster. However, there are additional requirements that must be met—including some imposed for all SBA loan programs. To qualify under the EIDL program, a business must:

• Be an eligible type of business. EIDLs are available to eligible small businesses, small agricultural cooperatives and most private nonprofit organizations. This also includes sole proprietors and independent contractors.
• Be located within a declared disaster area. To qualify for an EIDL, a business must be located in a declared disaster area. Business owners can check the SBA’s list of declared disasters to search for areas by state and county.
• Have sustained a substantial economic injury due to the disaster. For a business to experience substantial economic injury under the EIDL program, it must be unable to cover ordinary and necessary operating expenses. Likewise, the business must be unable to meet its current financial obligations.
• Have exhausted other financing options. Applicants must demonstrate to the SBA that they have attempted to obtain credit elsewhere and been unsuccessful.
• Apply within nine months of disaster declaration. Prospective EIDL borrowers must apply for a loan within nine months of disaster declaration. That said, the SBA makes some exceptions for death, illness, mail disruptions, military service, and relocation and repair issues.

How to Get an EIDL

Getting an EIDL varies from the standard SBA loan application because it may require an on-site inspection. If you believe you are located in a declared disaster area and eligible for the EIDL program, follow these steps to get a loan:

1. Submit an Application

Submit an EIDL application online through the SBA’s Disaster Loan Assistance page. Alternatively, print out an SBA loan application (SBA Form 5 or 5C) or request a hard copy via telephone and then submit it by mail to 14925 Kingsport Rd., Ft. Worth, TX 76155-2243. You can also apply in person at a local Disaster Recovery Center. It is not necessary to wait until insurance claims settle or until you receive FEMA grants or contractor estimates.

In addition to the application form, it is also necessary to provide copies of your most recent federal income tax return. You may also be required to upload personal financial statements, business income statements, balance sheets and information about the business’ other debts. Be prepared to submit the following forms, too:

• Tax Information Authorization form (IRS Form 4506-T). Complete the Request for Transcript of Tax Return to give the IRS permission to send your tax return information to the SBA.
• Schedule of Liabilities (SBA Form 2202). The SBA provides a suggested format for an applicant’s Schedule of Liabilities, including notes, mortgages and accounts payable. This illustrates the applicant’s current fixed debts. Complete this document to accurately represent your business’ current liabilities.
• Personal Financial Statement (SBA Form 413). A Personal Financial Statement is used to evaluate an applicant’s financial condition. This includes information about assets, income sources, liabilities and contingent liabilities like legal judgments.

2. Schedule an Inspection

Once completed, your loan application will be reviewed for completeness and forwarded to the SBA’s loss verification team. It will then undergo an initial verification process to determine the extent of physical damage resulting from the disaster. If further investigation is necessary, the SBA will schedule an in-person property inspection to estimate the amount of damage.

3. Await Lending Decision and Close

If any additional information or documentation is required, an SBA loan officer will contact you. Otherwise, the officer will write to you with a recommended loan amount and next steps. The SBA aims to make lending decisions within two to three weeks of receiving a complete application package.

If you are approved for EIDL funds, you are not obligated to accept the loan. However, if you choose to move forward, you will receive loan closing documents. Sign and return your closing documents to receive the loan funds.

4. Receive Loan Funds

Receiving loan funds under the EIDL program can take weeks or even months—though in most cases, you can expect to get your funds within a week of loan approval.

5. Work With Your Case Manager

As an EIDL borrower, you will be assigned a dedicated case manager who schedules future loan disbursem*nts. This point of contact also can help if your circ*mstances change and the loan amount needs to be increased or decreased based on actual repair costs.

EIDL case managers also ensure that you meet recordkeeping requirements, including maintaining accurate books for the most recent five years and for at least three years after the loan reaches maturity or is paid off.

Pros and Cons of EIDLs

An EIDL can be the difference between thriving and permanently closing for many businesses impacted by a declared disaster. That said, the EIDL program has advantages and disadvantages, and it may not be a good fit for all business owners.

Pros of EIDLs

• High borrowing limits
• Low, capped interest rates
• Lengthy repayment terms
• No fees or prepayment penalties
• Can be used for working capital
• Available to small businesses as well as independent contractors and sole proprietors

Cons of EIDLs

• Extensive application process
• Requires a hard credit check
• May require collateral
• Use of funds is still limited to certain expenses
• Borrowers are subject to bookkeeping requirements to track the use of funds
• Funding may be slow