eidl loan application
If an S corporation pays out dividends, however, they are not required to pay employment taxes on these, although the law does require that reasonable wages be paid to owners. The EIDL loan agreement states: “SBA’S RIGHTS IF THERE IS A DEFAULT: Without notice or demand and without giving up any of its rights, SBA may: A) Require immediate payment of all amounts owing under this Note; B) Have recourse to collect all amounts owing from any Borrower or Guarantor (if any); C) File suit and obtain judgment; D) Take possession of any Collateral; or E) Sell, lease, or otherwise dispose of, any Collateral at public or private sale, with or without advertisement.”. In addition, the EIDL loan agreement requires the borrower to maintain hazard insurance based upon 80% of all insurable assets of the borrower. “The Security Agreement only grants a security interest in the property owned by Borrower (Company), and the UCC financing statement to be filed will only identify the Company as the debtor, with no reference to the officer signing on behalf of the company.”. All businesses applying for an EIDL loan are eligible to also apply for a fast $10,000 advance on their loan. This despite the fact that the CARES Act waived the personal guarantee for smaller loans with the following language: “With respect to a loan made under section 7(b)(2) of the Small Business Act (15 U.S.C. The EIDL loan agreement (which you can read in full here) currently states: “By signing or otherwise authenticating below, each individual and each organization becomes jointly and severally obligated as a Borrower under this Agreement.”, “The terms are very straightforward and clear: This is a personal guarantee,” observes small business attorney Garrett Sutton, and my co-author of Finance Your Own Business: Get on the Financing Fast Track. EY & Citi On The Importance Of Resilience And Innovation, Impact 50: Investors Seeking Profit — And Pushing For Change, Economic Injury Disaster Loan (EIDL) program, Financial Help for Freelancers and Independent Contractors Affected by the Coronavirus Crisis, Where’s the Money? What is “Substantial Economic Injury” for purposes of EIDL Qualification? Borrowers who have received EIDL loans are balking at what appears to be onerous provisions imposed ... [+] on them. “While the Agreement does not state that no individuals are personally liable on the loan, The Loan Authorization and Agreement specifically states each individual or entity acknowledges and accepts personal obligation and full liability under the Note as borrower. and Kevin Cameron, CPA. Your job is to protect your business. I am a board-certified estate planning and trust lawyer who practices at Gassman, Crotty & Denicolo in Clearwater, Florida. Businesses in certain heavily-impacted industries may be eligible as well even if they have more than 500 employees. It is important for borrowers to consult with their CPA, attorney, and banker, and to read the loan agreement carefully prior to applying. The agreement also requires that any borrower may not relocate his or her business without prior written permission from the SBA and if the borrower receives any funds from non-EIDL sources to help with Coronavirus-related injuries then those funds must be turned over to the SBA. It’s important to note when reading the agreement, that the terms apply only to the Borrower, identified in this specific Agreement as the [Company Name] and not the Officer Name. Private non-profit organization or 501(c)(19) veterans organizations that meet the employee number requirement are also eligible. There are insurance carriers that are actually writing policies for PPP borrowers to pay for government investigations and fines that may be imposed if a PPP loan was not “necessary” but we are not aware of any such policies for EIDL loans. Nevertheless, it’s an important requirement that business owners should be aware of. You can only apply for this loan directly through the U.S. Small Business Administration website. New applications are not available at this time except for agricultural businesses. The entire United States is considered a declared disaster area because of COVID-19, but proving that the business suffered “substantial economic injury” to the point of being “unable to meet its obligations, or pay its ordinary and necessary operating expenses” may be hard to do for many businesses that have cash on hand from PPP loans that will be forgiven, as well as from other sources. While a great many borrowers consider it to be a duty or an entitlement to borrow under the EIDL program, the standard of need appears to be much higher than the treacherous “necessity” standard that applies for PPP loans (as discussed in my article dated May 4, 2020) and while an EIDL loan is outstanding there can be no dividends or personal expenses paid by the business entity for its owners, as discussed below. So when you’re committing your business or yourself to repay thousands of dollars, it’s a good idea to have a small business attorney who can help you review the agreement. The borrower who contacted me about this language also raised this question with the SBA and received the following email from an SBA employee: “I received your inquiry requesting clarification on certain terms in the Loan Authorization and Agreement. They have spent loan monies on prohibited expenses. This reconsideration process has been a successful strategy for many applicants, but you’ll need to have a detailed reconsideration package. If a direct Federal debt is delinquent, your recommendation must be based on independent documentation from the appropriate Federal agency explaining how the delinquency will be cured. This coverage must be acquired within 12 months of obtaining the loan. Most small businesses have elected to be taxed as S corporations. U.S. Small Business Administration website, https://www.sba.gov/funding-programs/disaster-assistance, https://www.sba.gov/funding-programs/loans/coronavirus-relief-options, https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loan-emergency-advance, California Residents: Do Not Sell My Personal Information, Proceeds must be used for working capital needs such as fixed debt and payroll, Interest rate of 3.75% for businesses and 2.75% for nonprofits, Loan term of up to 30 years, depending on the needs of the borrower, Automatic one-year deferment on repayment so the first payment is not due for a full year, Applicant must be adversely impacted by COVID-19. You cannot apply for EIDL Loans through SBA.com®. For answers to specific questions, borrowers should speak with a qualified CPA and Attorney to best understand the short and long-term requirements for receiving these loans, and may want to start with an attorney who can hire the CPA to keep communications under the attorney client privilege. Again, the last two words of that sentence are important, as it is only The Borrower (company) on loans under $200,000 who are liable under the loan and agreeing to the terms in the Agreement. (In fact, according to the SBA, in 2012 just under 20% of small businesses operated as corporations.) [Important update: as of April 16, 2020, the U.S. Small Business Administration is only accepting new EIDL applications from agricultural businesses due to funding limitations. The best path forward for many EIDL borrowers will be to pre-pay the loan once it is clear that it is probably not needed, to allow the business to “meet its obligations as they mature, or to pay its ordinary and necessary operating expenses.”. Borrowers who received an EIDL payment should be well aware of the rules and regulations related to them. EIDL Loan. They have paid dividends or personal expenses for their owners. “The government may not enforce it, but the way it’s written, they could,” he warns. We will also describe how the first $10,000 of any EIDL loan is actually considered to be a grant that does not have to be repaid, except to the extent of amounts borrowed from the PPP program. Further, all EIDL borrowers will find that their private details are available in the public records because of the Freedom of Information Act, enumerated at 5 U.S.C. Apply for a COVID-19 Economic Injury Disaster Loan at SBA.gov. The loan is made by the Small Business Administration directly and a $10,000 advance on the loan can be requested as well. ], Economic Injury Disaster Loan (EIDL) Program for COVID-19. As it is now the SBA is almost unreachable by phone, meaning that this consent requirement for any and all distributions is likely to be broken by many without intention. Read and review an EIDL loan document before accepting it. Repayment of stockholder/principal loans, except when the funds were injected on an interim basis as a result of the disaster and non-repayment would cause undue hardship to the stockholder/principal; 4. Not a legal expert? If the Federal creditor cannot or will not cooperate, the likely result will be a decline of the EIDL request. Separate and apart from the Paycheck Protection Program (“PPP”) is the Economic Injury Disaster Loan (“EIDL”) program. See our Advertiser Disclosure. Kevin Cameron, a knowledgeable CPA whose advice has been imperative in drafting this article, remains unsure whether he will recommend this loan to those not in a financial emergency. Since the EIDL loan application only asks for “COGS” would it be appropriate to put some of the COS or Direct Expenses we listed above into the COGS section of the loan application for providers of services? © 2020 Forbes Media LLC. EIDL Loans are based on the amount of “Economic Injury” sustained by the business, and capped at $2,000,000. We are a private business providing resources for small businesses, including resources for PPP loans. This page is purely informational. Many EIDL borrowers forgot or were unaware that there was a collateral agreement in the application for loan … You can learn more from the U.S. Small Business Administration here: https://covid19relief.sba.gov/. He recommends borrowers add their own addendum that notes that because the loan is below $200,000, this does not include a personal guarantee. Payment of any part of a direct Federal debt, (including SBA loans) except IRS obligations. Even if the personal guarantee protects borrowers, defaulting may prevent a borrower from qualifying for other federal loans such as federal student loans. Opinions expressed by Forbes Contributors are their own. Superior liens on the EIDL loan document before accepting it as getting a new loan to,! But it is vital decline of the EIDL agreement requires any borrower accepting loan. If these businesses pay wage to their owners they are required to pay employment taxes 8. An important requirement that business owners should be well aware of that to! You ’ ll need to have a detailed reconsideration package federal student.. Within 12 months of obtaining the loan can be hard to get, these loans is December 31 2020... 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