By Murray Wennerlund published 10-3-2021 updated 4-18-2022
The major change to the SBA EIDL program is the use of the funds. You can not use the EIDL to pay other Federal secured loans.
The COVID EIDL Program currently is scheduled to end December 31, 2021, or until funds are exhausted.
These rule changes only apply to applications approved on or after Sept. 8, 2021. You may have applied before Sept. 8, 2021 and approved on Sept 8, 2021 which would make the changes applicable to you. If your application was approved prior to Sept. 8, 2021 these changes do not apply to you. You can contact your SBA office or loan officer for clarification.
If you have read the new changes and would like to make a public comment before Oct. 8, 2021 please do so.
"2. Second Decline of Loan Application
The regulation at 13 CFR 123.13, What happens if my loan application is denied?, requires that applicants appeal a second decline of a loan application directly to the Director, Disaster Assistance Processing and Disbursement Center (DAPDC). To enable timely consideration of appeals, SBA is changing the appeals process to allow the Director, DAPDC, or the Director's designee(s), to make the decision on appeals for all Disaster Loan Program loans. In addition, SBA is revising the regulation to clarify that the Administrator, solely within the Administrator's discretion, has the authority to review the matter and make the final decision.
Therefore, SBA is revising the regulation at 13 CFR 123.13, paragraphs (e) and (f), to state that, if SBA declines an application a second time, the Director, DAPDC, or the Director's designee(s), will make the decision. Further, SBA is revising the regulation to state that the Administrator, solely within the Administrator's discretion, may choose to review the matter and make the final decision. Such discretionary authority of the Administrator does not create additional rights of appeal on the part of an applicant not otherwise specified in SBA regulations. The changes to this regulation apply to all SBA Disaster Loan Programs."
Under regulation 13 CFR 123.13 paragraphs (e) and (f) you will find the following.
§ 123.13 What happens if my loan application is denied?
(e) If SBA declines your application a second time, you have the right to appeal in writing to the Director, Disaster Assistance Processing and Disbursement Center (DAPDC) or the Director's designee(s). All appeals must be received by the processing center within 30 days of the decline action. Your request must state that you are appealing, and must give specific reasons why the decline action should be reversed.
(f) The decision of the Director, DAPDC or the Director's designee(s), is final unless:
(1) The Director, DAPDC or the Director's designee(s), does not have the authority to approve the requested loan
(2) The Director, DAPDC or the Director's designee(s), refers the matter to the SBA Associate Administrator for Disaster Assistance (AA/DA)
(3) The AA/DA, upon a showing of special circumstances, requests that the Director, DAPDC or the Director's designee(s), forward the matter to him or her for final consideration or
(4) The SBA Administrator, solely within the Administrator's discretion, chooses to review the matter and make the final decision. Such discretionary authority of the Administrator does not create additional rights of appeal on the part of an applicant not otherwise specified in SBA regulations.
[61 FR 3304, Jan. 31, 1996, as amended at 71 FR 63676, Oct. 31, 2006 75 FR 60598, Oct. 1, 2010 81 FR 67903, Oct. 3, 2016 86 FR 50219, Sept. 8, 2021]
Research indicates that this type of appeals process will be slightly easier to win when you can provide additional proof that you can afford to repay the loan.
It's also good to carefully prepare because this loan can be used to make payments on past loans you currently have on the books.
Changes: "4. COVID EIDL Uses of Proceeds Currently, the EIDL program only permits loan proceeds to be used for working capital necessary to carry the business until resumption of normal operations and for expenditures necessary to alleviate the specific economic injury and does not permit payments on Federal debt or prepayment of non-Federal existing debt even if the debt has a balloon payment due. Prior to the pandemic, businesses, in the ordinary course of their operations, managed debt payments through cash flows of the business. Due to mandatory COVID-19 closures, some businesses did not have sufficient cash flow to service debt obligations. Despite several short-term emergency programs in the CARES Act and other statutes, many small businesses have not been able to return to normal operations, and now struggle with deferred debt, past due payments, and insufficient cash flow. With the expectation that the pandemic would not last for the duration that it has, many businesses took on short-term debt, often with unfavorable repayment terms, or negotiated deferments in debt payments in order to avoid default. In order to maximize relief from the debt burden businesses and nonprofit organizations have accrued, SBA is expanding COVID EIDL eligible uses of proceeds to include payments on all forms of business debt, including loans owned by a Federal agency (including SBA) or a Small Business Investment Company (SBIC) licensed under the Small Business Investment Act. COVID EIDL loan proceeds may be used to make debt payments including monthly payments, deferred interest, and pre-payment of business debt, except that pre-payments will not be permitted on any debt owned by a Federal agency (including SBA) or an SBIC. COVID EIDL loan proceeds may be used to pay debt incurred both before and after submitting the COVID EIDL loan application. Therefore, SBA is revising the regulation at 13 CFR 123.303, "How can my business spend my economic injury disaster loan?", to permit COVID EIDL working capital loan proceeds to be used to pay any type of business debt, including loans owned by a Federal agency (including SBA) or an SBIC. SBA also is revising the regulation to clarify that COVID EIDL loan proceeds may be used to make debt payments including monthly payments, payments of deferred interest, and pre-payments, except that pre-payments will not be permitted on debt that is owned by a Federal agency (including SBA) or an SBIC."
Editors Note: The idea that you would be accepting a loan to pay the payments of another loan of the same type and same purpose isn't very logical. The SBA has never been about disaster recovery as much as providing federally secured loans for investors. If you can find grants that would allow you to pay your debt that would be your first choice. You should contact your state government about programs they have available to small business owners before you add additional debt.