In September, the U.S. Small Business Administration (SBA) updated the guidelines for the pandemic-induced Economic Injury Disaster Loan (EIDL) program. Existing small business owners—especially franchise owners—who are still facing daunting challenges and losses are now eligible to apply for up to $2 million in EIDL loans. And the SBA is ready to start processing these loan applications right away.
First, let’s review EIDL loans and explain the criteria small businesses and franchise owners must meet to qualify for the assistance.
As a response to COVID-19, small business owners, including franchise owners, and nonprofit organizations in all U.S. states, Washington D.C., and territories can apply individually for a COVID-19 Economic Injury Disaster Loan (EIDL). EIDLs are loans provided directly from SBA that require repayment, however, their low-interest, fixed-rate (3.75% for profit, 2.75% for nonprofit), long-term (30-years) assistance is designed to further help business owners overcome the negative effects of pandemic-related operation with a new infusion of working capital for operating expenses.
How EIDL Money Can Be Used
According to the SBA website, borrowers can utilize the new working capital to make regular payments for operating expenses, including payroll, rent/mortgage, utilities, and other ordinary business expenses, as well as for payment of business debt incurred at any time (past, present, or future). The maximum amount of loan assistance is capped at $2 million, and the SBA is standing by to approve and grant loans greater than $500,000 between now and Oct. 8 (first 30 days). For loans exceeding $500,000, the application process begins after Oct. 8. Payments are completely deferred for the first two years, but interest does accrue and there’s no penalty for pre-payment on the balance. All new and amended EIDL loan applications will be accepted through Dec. 31, 2021.
Other Fees, Requirements, and Fine Print
For loans greater than $25,000 or less, there are no fees if applying directly through the SBA. For loans greater than $25,000. For loans greater than $25,000, there is a one-time $100 fee for filing a lien on the borrower’s business assets, plus costs to file a lien on real estate (if applicable). For those greater than $500,000 where SBA is taking real estate as collateral, the loan requires a one-time $100 fee for filing a lien on the borrower’s business assets. And additionally, the borrower will be responsible for recording the real estate lien and paying the associated fees. Collateral is required, but no personal guarantee is necessary unless the loan is greater than $200,000.
These EIDL funds will be distributed from a $150 billion fund and, according to the SBA’s EIDL loan page, you can expect a speedy response. “The SBA no longer has an application backlog, so reviews should be swift. It has expedited loan processing from about 2,000 applications daily to more than 37,000 applications per day. Loan officers now review 15 applications per day compared with fewer than two per day previously. As a result, the agency has cleared a backlog of more than 600,000 applications.”
Among the franchise categories where this is most welcome news is the restaurant, gym, and hotel concepts, though a survey conducted by Goldman Sachs of over 10,000 small business owners recently revealed that 44% have three cash reserves or less. A third were hopeful and confident that these new funds would be put to good use.
If business ownership through franchising is still top-of-your-mind, perhaps it’s time to begin an entrepreneurial journey of your own. We can help you get started today by setting up a no-cost, no-obligation appointment with a qualified FranNet representative who both lives and works in your area. Together, we can find a franchise ownership opportunity that matches up perfectly with your lifestyle and income-oriented goals.