The Small Business Administration's (SBA) interim final rule (IFR), issued September 8, 2021, significantly expands its COVID-19 Emergency Injury Disaster Loan (COVID EIDL) program, which provides low-interest, long-term loans for small businesses and nonprofits who experienced or continue to experience economic harm resulting from the pandemic.
Key changes include:
- Increased maximum loan amount from $500,000 to $2 million, subject to a 30-day exclusivity window for approval and disbursement of loans of $500,000 or less.
- Expanded allowable uses for loan proceeds to include payment and prepayment of commercial debt and to make payments on federal business debt.
- Extended the payment deferral period.
- Simplified affiliation requirements.
Increased Loan Amount and Exclusivity Window
The SBA is accepting applications for loans. However, from September 8 through October 7, the SBA will only approve EIDL applications for amounts of $500,000 or less. Beginning October 8, 2021, subject to availability of funds, the SBA will begin approving loans requests over $500,000 and up to the $2 million cap. The SBA anticipates that it will take three weeks to review and approve applications for loans of less than $500,000 and six weeks for requests of over $500,000. This creates timing consideration for applicants who make an initial request for $500,000 or less and then request an increase after obtaining approval.
Prepaying Commercial Debt and Making Payments on Federal Debt
Before September 8, 2021, EIDL borrowers were not permitted to refinance existing commercial indebtedness, but were permitted to make regular debt service payments using EIDL proceeds. Under the expanded COVID EIDL program, borrowers may prepay or refinance existing non-federal commercial indebtedness, whether such debt was incurred before or after submission of the COVID EIDL loan application. Additionally, borrowers may make debt service payments (but not prepay or otherwise refinance) debt to federal agencies, including the SBA.
Payment Deferral Period
COVID EIDL loans made in the calendar year 2020 will have the first payment due date extended from 12 months to 24 months from the date of the applicable note. Loans made in the calendar year 2021 will have the first payment due date extended from 12 months to 18 months from the date of the applicable note.
Simplified Affiliation Rules
The SBA has simplified the "affiliation" requirements to match those set forth in section 5003 of the American Rescue Plan Act (ARPA) for the Restaurant Revitalization Fund (RRF). Pursuant to this definition, an affiliated business or affiliate is "a business in which an eligible entity has an equity interest or right to profit distributions of not less than 50 percent, or in which an eligible entity has the contractual authority to control the direction of the business," provided that such affiliation shall be determined as of January 31, 2020. Importantly, this definition appears to exclude parent entities of the borrower.
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