Economic Injury Disaster Loans (EIDL) are an option for businesses that have been hurt financially due to natural disasters like an earthquake or the coronavirus pandemic. EIDL loans offer some financial relief and keep your business running admits challenging times. In this article, we will discuss how EIDL loans work and the pros and cons of this program.
What is an SBA Economic Injury Disaster Loan (EIDL)?
You can apply for an EIDL as long as you can prove that your small business has suffered due to natural disasters or the pandemic. You can borrow up to $3 million with this loan.
When you get approved and receive the funds, you can use them toward payroll, rent, or other expenses. If you receive the Paycheck Protecting Program loan, you cannot use the EIDL to pay for the same expenses. You’ll be able to pay back your loan at an interest rate of 3.75% and a loan term that ranges from 15 to 30 years.
The Pros of an EIDL
There are some pros that come with an EIDL. They include the following:
- Large loan amounts: you can borrow thousands or millions if you qualify. Loans of this size are hard to obtain somewhere else.
- Low interest rates: EIDL’s come with low interest rates. This can save you thousands over the life of your loan.
- Longer repayment terms: you have 15 to 30 years to repay an EIDL while other typical business loans must be repaid within several years.
- No fees: you can take out an EIDL without worrying about additional fees like application fees, origination fees, and prepayment fees.
- Not limited to small businesses: sole proprietors and contractors can patriciate in this program.
- Pay for working capital: the EIDL will help you cover expenses that you need to sustain your business. This includes bills, outstanding invoices, and more.
The Cons of an EIDL
The following are some cons that come with an EIDL.
- Long application process: it takes some time to apply for an EIDL because they require many documents including personal and business tax returns, income statements, balance sheets, and more.
- Credit check: If you submit an EIDL loan application, your business credit will be checked.
- Collateral needed: you will need to provide collateral if you borrow more than $25,000.
- Bookkeeping requirements: the SBA will require you to keep accurate books for the most recent five years and continue until at least three years after your loan matures or you pay it off.
- Not forgivable: an EIDL is not forgivable, so you are required to repay it after you take it out.
- Funding takes time: if you get approved it will take a while to get your funds because this product is popular.
The Bottom Line
An unexpected event like the pandemic or an earthquake can take a toll on your business. With an EIDL to cover working capital, you can sustain your operations and make it through a difficult time. Before you take one out, however, make sure you’ll be able to repay the loan and feel confident that it will help, rather than hurt your business.