Small Business Admin. Lifts Cap on Economic Injury Disaster Loans

The Economic Injury Disaster Loans program through the Small Business Administration could be a lifeline to many small businesses that are struggling due to the pandemic. Now, the government has increased the loan limit from $500,000 to $2 million, starting Oct. 8. And, the loans can now be used to refinance existing debt.

Companies that have already borrowed up to the previous $500,000 limit will be allowed to apply for more – up to roughly two years’ operating costs, up to $2 million. The interest rate is 3.75% for businesses and 2.75% for private nonprofit organizations.

Collateral is required for any loan greater than $25,000. The SBA is taking real estate as collateral. A personal guaranty, which makes you personally responsible for the debt, is required for loans greater than $200,00.

The loan program comes with a two-year deferral on payments to allow struggling companies a little time to catch up on their bills. The loans can be repaid over a term of up to 30 years and can now be used to cover a wide variety of expenses, including higher-interest loans or other federal debt.

So far, under the original terms of the loans, the SBA has issued 3.8 million loans totaling $263 billion. Early in the pandemic, the SBA limited the loans to $150,000, fearing that a flood of borrowers would deplete the program’s funds. After the election, the cap was raised to $500,000.

Loan program a needed source of funding, criticized for its complexity, backlogs

The loan programs offered through the SBA during the pandemic have been life-saving for many small businesses, but they have been plagued with fraudulent applications, backlogs and complex, shifting rules. The Economic Injury Disaster Loans program is no exception.

The agency said it had addressed a backlog of loan-increase applications that had reached over 600,000. It said that it had significantly sped up processing to eliminate the backlog. Hopefully, that speed will continue as new loan applications are received – but not so much that fraud becomes rampant.

Apply right away: Oct. 8 opening date

If you need to take out a high-quality, low-interest loan to help keep your business afloat, this program could be for you. However, it is unclear how long the funding for this program will last. The recent $1 trillion infrastructure bill proposes to pull some of the existing funds away for other purposes.