Economic Injury Disaster Loans and Grants – Additional Funding Opportunity Available to Nonprofits

NOTICE – This article has not been updated to reflect new legislation passed by Congress on December 21, 2020.  That legislation could significantly affect the content of this article.  We plan to update this article during January 2021 to reflect the impact of the new legislation.

April 9, 2020

Mike Lee, CPA
Dale Houser, CPA
Danny Johnson, CPA

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) includes a number of relief measures which may be helpful to nonprofit organizations. One such measure is an expansion of the Economic Injury Disaster Loan (EIDL) Program offered under Section 7(b) of the Small Business Act.

What is the EIDL Program?

The EIDL Program is a lending program administered by the Small Business Administration (SBA) to help nonprofit organizations (and other specified organizations) overcome the loss of revenue caused by disasters or emergencies, including the Coronavirus (COVID-19). All fifty states have been declared disaster areas for purposes of the EIDL Program.

What can EIDL loans be used to pay?

EIDL funds may be used to pay fixed debts, payroll (but see next sentence), accounts payable, and other bills that cannot be paid due to a decline in revenue. Organizations are eligible for both EIDL loans and forgivable loans under the separate Paycheck Protection Program (PPP); however, proceeds from the loans cannot be used to pay the same expenses (in other words, you cannot “double dip” with respect to the use of funds). EIDL funds may not be used to refinance other long-term debt or to expand facilities.

How much is my organization eligible for?

It depends. Loans made under the EIDL Program can provide up to $2 million in assistance to nonprofits. Eligible organizations may also request an emergency grant of up to $10,000 (the grant is actually in the form of a loan advance which does not need to be repaid). See additional information on the emergency grant below.

What are the repayment terms?

The interest rate for nonprofits is fixed at 2.75% per annum with repayment terms up to a maximum of 30 years (repayment terms are established on a case-by-case basis). SBA guidance indicates that payments are automatically deferred for one year.

Unlike PPP loans, EIDL loans are not forgivable.

Will my organization qualify for a loan under the EIDL Program?

Maybe. Most nonprofit organizations are eligible for the EIDL Program, without regard to size.

The SBA has issued guidance that removes any doubt about whether churches and other religious organizations are eligible to participate in the EIDL Program and affirms that such organizations will not be sacrificing their First Amendment or statutory rights if they request or receive a loan.

Pursuant to the CARES Act, a loan made under the EIDL program is allowable without a personal guarantee up to $200,000. In addition, the CARES Act states that the SBA may 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 (in other words, your organization must have a credit history acceptable to the SBA).

The organization will need to be able to demonstrate that it has suffered economic injury as a result of COVID-19. It is the authors’ understanding that economic injury is measured in relation to 2019 financial results, with no threshold of a percentage or dollar amount. Economic injury may possibly include financial harm caused by closing down, layoffs, or perhaps even experiencing an economic loss due to a decline in endowment value.

Your organization may be required to pledge collateral.

What do I need to know about the $10,000 emergency grant?

The emergency grant can be used to pay for any allowable purpose for a loan made under Section 7(b)(2) of the Small Business Act (see discussion above in the section entitled “What can EIDL loans be used to pay?”).

The grant is not required to be repaid, even if a loan application under the EIDL Program is subsequently denied by the SBA.

If an organization obtains both a loan under the PPP and the $10,000 emergency grant, the forgivable portion of the PPP loan must be reduced by $10,000 (in other words, an organization is not eligible to have both the entire PPP loan forgiven and have the benefit of the $10,000 grant).

The grant program expires December 31, 2020.

How do I apply for a loan or grant offered by the EIDL Program? Is the Program open now?

You can apply for an EIDL and Loan Advance here. The SBA is currently accepting loan applications.

Please visit our COVID-19: Legal and Regulatory Developments for Nonprofits webpage for the latest version of our summary of the key provisions of the CARES Act relevant to nonprofit organizations.


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