EIDL Detailed: Self-Employed / Independent Contractor.
With more independent contractors, freelancers, gig workers being counted out of the disaster recovery process it looks like SBA Economic Injury Disaster Loans may be a low costs option but only if your business is going to be able to return.

By Murray Wennerlund published 8-6-2020 updated 8-6-2020

EIDL Detailed: Self-Employed / Independent Contractor.

Economic Injury Disaster Loan (EIDL):

  • Low-interest (3.75% / 2.75% nfp)

  • long-term 5 to 30 years.

  • loans for working capital.

  • must have suffered substantial economic injury as a result of the COVID-19 pandemic.

Tax Information: 1040 Schedule C

Payroll Type: Cash Draw

Federal Assistance: Declared Disaster Assistance

Payroll Costs: Net earnings from self-employment

Loan Type: SBA 7(b) EIDL Disaster Loan

Type of Disaster Loan: Economic Injury Disaster Loans (EIDLs) &ndash Working capital loans to help small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most private, non-profit organizations of all sizes meet their ordinary and necessary financial obligations that cannot be met as a direct result of the disaster. These loans are intended to assist through the disaster recovery period.

EIDL assistance is available only to entities and their owners who cannot provide for their own recovery from non-government sources, as determined by the U.S. Small Business Administration (SBA).

Credit Requirements:

Credit History &ndash Applicants must have a credit history acceptable to SBA.

Repayment &ndash Applicants must show the ability to repay the loan.

Collateral &ndash Collateral is required for all EIDLs over $25,000. SBA takes real estate as collateral when it is available. SBA will not decline a loan for lack of collateral, but SBA will require the borrower to pledge collateral that is available.

Duplication of Benefits (DOB): 7(b) yes EIDL

Covered Period: January 31, 2020 and ending on December 31, 2020

Interest Rates: The interest rate is determined by formulas set by law and is fixed for the life of the loan. The maximum interest rate for this program is 4 percent. (3.75% for profit, 2.75% Not for Profit)

Loan Terms: The law authorizes loan terms up to a maximum of 30 years. SBA will determine an appropriate installment payment based on the financial condition of each borrower, which in turn will determine the loan term.

Loan Amount Limit: Economic Injury Disaster Loans (EIDL) &ndash The law limits EIDL(s) to $2,000,000 for alleviating economic injury caused by the disaster. The actual amount of each loan is limited to the economic injury determined by SBA, less business interruption insurance and other recoveries up to the administrative lending limit. SBA also considers potential contributions that are available from the business and/or its owner(s) or affiliates. If a business is a major source of employment, SBA has the authority to waive the $2,000,000 statutory limit.

Who's Eligible: Any individual who operates under a sole proprietorship, with or without employees, or as an independent contractor.

Eligible entities: Small business, private nonprofit organizations, and small agricultural cooperatives.

Credit Elsewhere: Waived all except must have been in business before January 31, 2020.
(Does not effect most of you, no worries at this point.)

Approval and ability to repay for small dollar loans: With respect to a loan made under section 7(b)(2) of the Small Business Act (15 U.S.C. 636(b)(2)) in response to COVID&ndash19 during the covered period, the Administrator may

  1. approve an applicant based solely on the credit score of the applicant and shall not require an applicant to submit a tax return or a tax return transcript for such approval or

  2. use alternative appropriate methods to determine an applicant&rsquos ability to repay.

NOTE: Your ability to repay the loan is the only focus point you need to have at this time. You should be calculating loans for 15 to 30 years to reduce your monthly overhead. You also should put together a financial plan that can show your ability to repay. Forecast earnings, reduced spending, lower inventory etc.

Emergency grant: (Advance) $1,000 minimum per independent contractor operating as owners. (Names on the 1040 Schedule C)

  • Reported by members: "... $1000 deposit into my account... self employed and put 0 for employees..."

Usage of Emergency grant: HR 748 Public Law 116-136

  1. paid sick leave when you are unable to work due to the direct effect of the COVID&ndash19

  2. maintaining earnings draw, payroll during business disruptions or substantial slowdowns

  3. Increased costs to obtain materials unavailable from the applicant&rsquos original source due to interrupted supply chains

  4. rent or mortgage payments and

  5. repaying obligations that cannot be met due to revenue losses. (fixed debt)

13 C.F.R. § 123.303

"(a) You can only use the loan proceeds for working capital necessary to carry your concern until resumption of normal operations and for expenditures necessary to alleviate the specific economic injury, but not to exceed that which the business could have provided had the injury not occurred.

(b) Loan proceeds MAY NOT BE USED TO:

(1) Refinance indebtedness which you incurred prior to the disaster event

(2) Make payments on loans owned by another federal agency (including SBA) or a Small Business Investment Company licensed under the Small Business Investment Act

(3) Pay, directly or indirectly, any obligations resulting from a federal, state or local tax penalty as a result of negligence or fraud, or any non-tax criminal fine, civil fine, or penalty for non-compliance with a law, regulation, or order of a federal, state, regional, or local agency or similar matter

(4) Repair physical damage or

(5) Pay dividends or other disbursements to owners, partners, officers or stockholders, except for reasonable remuneration directly related to their performance of services for the business."

(Resource 13 C.F.R. § 123.303: https://www.govinfo.gov/content/pkg/CFR-1999-title13-vol1/pdf/CFR-1999-title13-vol1-sec123-303.pdf )

Emergency grant repayment: (Advance) not required up to the amount of the advance only.

Emergency grant reduced in PPP unemployment grant: If you merge your EIDL (7b) into a PPP (7a) unemployment forgive loan the amount of your PPP will be reduced in the amount of your EIDL Emergency Grant.

First Payment: 12 months from disbursements of funds. This may be 2 6 month payment deferrals bundled.

Usage of Economic Injury Disaster Loan (EIDL):

These are working capital loans that may be used to pay,

  • fixed debts,

  • payroll,

  • accounts payable,

  • other bills that could have been paid had the disaster not occurred.

Usage Notes: Economic Injury Disaster Loans help owners stay afloat during the declared disaster and ready to hit the ground running when allowed to return to work. This loan, (EIDL) is not to be used to pay for retooling or for business expansion. You are advised to seek other funding for expansion and retooling to meet current market demands.

Research / Experience regarding ability to repay loan.

Credit History / Scores: noted 350 on up approved for $15,000 without checks for ability to repay. You must be very careful with loans that place you at risk of default. Talk to your loan officer about a 30 year payment plan.

EIDL Processing order:

Start to Finish Economic Injury Disaster Loan process as reported by members of the SBA Disaster Recovery Loans Facebook Group:

  1. Application submitted. (Old or Streamline)

  2. Requested business tax filings

  3. Received login portal information

  4. Created portal login.

  5. Presented loan offer once signed on.

  6. Selected the amount offered and the terms of the loan.

  7. Authentication process secret question.

  8. Loan status shows Pending

  9. Screen shows amount as confirmed based on borrowers selection.

  10. Confirmed ID shows completed.

  11. Loan accepted SBA obligates funds processes documents to send borrower to sign. (added time delay varies.)

  12. Documents signed electronically or by postal mail and returned.

  13. SBA orders the disbursement of funds.

  14. Deposit to your account on file.

Note: You must contact the SBA loan officer to arrange for draws of your funds if you are looking only to draw what is needed when you need it one month ahead of time.