South End Capital Compares SBA EIDL Program vs. CARES Act SBA 7(a) Relief Loan

We have received hundreds of emails and calls from business owners confused about the SBA relief funding options available. One of the most prevalent questions we have been ask is, “What is the difference between the SBA EIDL and CARES Act program, and which is better?” Business owners also want to know what loan terms are available and if they can apply for both types of relief funding. Outlined below, and to the the best of our ability based on the information available, are the differences between the two programs and the broad strokes of what each entails.

Economic Injury Disaster Loan (EIDL)

  • Must apply directly through the SBA (funds delivered by the SBA only, not us)
  • Loan amounts up to $2,000,000
  • 3.75% interest rate for for-profit businesses
  • 2.75% interest rate for non-profit businesses
  • Loan terms will not exceed 30 years
  • Only available in states with SBA approved declarations of disaster (check the most current State availability list here)
  • Through our sources we’ve heard there are currently over 25,000 applications submitted so far, with at least a 3-week approval lag time. It can be assumed that approval times will only increase as more applicants apply
  • If you receive an EIDL, you will not be eligible for the CARES Act SBA 7(a) Relief Loan

CARES Act SBA 7(a) Relief Loans*

*Signed into law on 3/27/2020, lenders are still pending guidance from the SBA on paperwork requirements and protocol for processing and funding. No loan applications can be progressed until this guidance is received.

  • You can apply through South End Capital
  • Loan amounts up to $10,000,000 (The maximum loan amount is the lesser of $10,000,000 or the product obtained by multiplying average total monthly payments for payroll costs during the 1-year period before the loan is made by 2.5. So if the loan was made on April 1, 2020, and average monthly payroll costs for the period April 1, 2019, to April 1, 2020, were $1,500,000, the maximum loan amount would be $3,750,000. Payroll amounts over $100,000 per person, will be excluded from the calculation).
  • No minimum credit score guidelines
  • Interest rates will not exceed 4% for eligible for-profit and non-profit businesses
  • Loan forgiveness (small businesses that take out these loans can get some or all of their loans forgiven. Generally speaking, as long as employers continue paying employees at normal levels during the eight weeks following the origination of the loan, then the amount they spent on payroll costs (excluding costs for any compensation above $100,000 annually), mortgage interest, rent payments and utility payments can be combined and that portion of the loan will be forgiven. Any loan amounts not forgiven at the end of one year are carried forward as an ongoing loan with terms of a max of 10 years at 4% interest. The 100% loan guarantee remains intact.)
  • Fully amortizing loan terms of 10 years
  • Loan proceeds to include payroll support (including paid sick or medical leave), employee salaries, mortgage payments, insurance premiums and any other debt obligations incurred before 2/15/2020
  • SBA guarantee fees and lender fees will be waived
  • No prepay penalty and no personal guarantees
  • The “credit elsewhere” test and collateral requirements would be waived during the covered period (this means that if you can get a loan “credit” through a non-disaster relief program, you can still get a loan under the CARES Act)
  • A borrower with a current EIDL loan can only also receive the CARES Act SBA 7(a) Relief Loan if the EIDL loan is unrelated to COVID-19

Borrower Requirements

There are very few borrower requirements outlined in the bill to obtain a loan under the new program. Those requirements include a good-faith certification that:

  • The loan is needed to continue operations during the COVID-19 emergency;
  • Funds will be used to retain workers and maintain payroll or make mortgage, lease, and utility payments;
  • The applicant does not have any other application pending under this program for the same purpose; and
  • From February 15, 2020 until December 31, 2020, the applicant has not received duplicative amounts under this program.

Which is Better?

Although you must decide which relief program is best for you, we believe that the CARES Act SBA 7(a) Relief Loan is the better option for the following reasons:

  • The SBA EIDL program already has a bottleneck of over 25,000 applications.
  • CARES Act SBA 7(a) Relief Loans are available up to $10,000,000 vs. only $2,000,000 for the EIDL program.
  • With the expertise and experience of seasoned SBA lenders and loan providers involved and helping to shape policy, we anticipate that the CARES Act SBA 7(a) Relief Loan program will be more streamlined than the EIDL program, and funding will be available faster.