EIDL Training Course Outline Based on SBA SOP 50 30 9
Introduction
● Overview of the SBA’s Office of Disaster Assistance and the EIDL program: The U.S. Small Business Administration’s Office of Disaster Assistance (ODA) provides financial assistance in the form of low-interest, long-term loans. The Economic Injury Disaster Loan (EIDL) program specifically provides eligible small businesses with necessary working capital to help them overcome the economic injury caused by a declared disaster.
● Importance of the EIDL for small businesses in federally declared disaster areas: EIDLs are critical for assisting businesses in meeting their ordinary and necessary financial obligations that cannot be met as a direct result of the disaster. Notably, a business does not need to suffer any physical damage to be eligible for an EIDL.
● What will be covered in the course (based on SOP): This course provides a comprehensive roadmap for navigating the EIDL program, guiding you from initial eligibility and documentation requirements through the application process, loan terms, fund usage restrictions, and the strategic processes for reconsideration and loan increases.
Module 1: Eligibility Requirements
● General Eligibility Requirements:
● Criteria for small businesses, including nonprofit organizations: To be eligible, an applicant must be a small business concern, a small agricultural cooperative, a small business engaged in aquaculture, or a private non-profit (PNP) organization of any size. The applicant must satisfy the SBA size standards based on the North American Industry Classification System (NAICS) code for its primary industry.
● Businesses impacted by a declared disaster: Applicants must be located within the declared disaster area. An economic presence alone is insufficient; the business must demonstrate a physical, tangible presence in the affected area.
● Exclusions: Agricultural enterprises (such as farming and ranching) are strictly ineligible for EIDL assistance and must seek aid from the USDA, though aquaculture enterprises remain eligible. Furthermore, applicants who are determined to have Credit Available Elsewhere from non-government sources at reasonable rates are ineligible for an EIDL. ● Ineligible Applicants:
● Detail on businesses or individuals who are not eligible: Lending and investment concerns, pyramid distribution companies, speculative activities, and businesses engaged in illegal activities are ineligible. Businesses whose primary purpose is gambling (like casinos and racetracks), or those deriving more than one-third of their gross revenue from legal gambling, are excluded. Additionally, businesses with principals who are incarcerated, on parole, or on probation are generally ineligible. ● Special Circumstances:
● How the SBA handles unusual eligibility situations: Alien-owned entities may be eligible if they are properly registered and any member, partner, or shareholder owning 20 percent or more of the business is a qualified alien lawfully present in the United States.
● Clarification of eligibility for both new applicants and those applying for loan increases or reconsideration: An applicant that established a new business or underwent a substantial change of ownership (more than 50 percent) after the impending economic injury became apparent is generally ineligible, as they are deemed to have assumed the risk.
Module 2: Application Process
● Initial Application:
● Overview of the application process, including online application portals and required documentation: Applicants can navigate the application process by applying online via SBA’s Electronic Loan Application (ELA) portal, returning paper applications by mail, or applying in person at a disaster field location.
● How to fill out the SBA Form 5 (the disaster loan application form): The primary intake document is the Disaster Business Loan Application (SBA Form 5), which must be fully completed and signed to avoid delays.
● Required Documents:
● Financial documents: Applicants must provide complete copies (including all schedules) of the business’s most recent Federal income tax returns, a Personal Financial Statement (SBA Form 413), and a Schedule of Liabilities (SBA Form 2202). If a recent tax return has not been filed, a year-end profit-and-loss statement and balance sheet must be supplied.
● Identification documents and SBA-specific forms: A Tax Information Authorization (IRS Form 4506-T) must be completed and signed by each applicant, each principal owning 20 percent or more, managing members, and affiliates. Additionally, SBA Form 1368 (Additional Filing Requirements for EIDL) must be provided to supply monthly sales figures.
● Processing and Review:
● Overview of how the SBA reviews applications: Applications are tracked via the Disaster Credit Management System (DCMS). EIDLs are processed using two primary methods. Phase I processing is simplified, requires no needs analysis, and uses a standard Gross Margin calculation for immediate working capital up to $300,000. Phase II processing requires a detailed needs analysis and calculates a Modified Contribution Margin (MCM) to measure the exact shortfall of funds.
● Timelines for review and potential follow-ups: The deadline for returning completed EIDL applications is generally 9 months from the date of the disaster declaration. ● Application Errors and How to Avoid Them:
● Common mistakes and how to ensure correct and complete application submission: Missing Social Security Numbers, missing signatures, or incomplete information will cause the application to be deemed unacceptable and returned. Furthermore, if the IRS Form 4506-T is incomplete or illegible, SBA personnel cannot alter it and will withdraw the application until a new form is provided.
Module 3: Loan Terms and Loan Amount Determination
● Loan Amounts:
● How the SBA calculates the loan amount based on business losses and financial data provided: Phase I loans are computed using the formula: (Normal Annual Sales x
Normal Gross Margin %) ÷ 12 x 4. Phase II loans calculate the “Lost MCM” by subtracting the injury period MCM from the normal period MCM, adjusting for extraordinary items and deducting any business interruption insurance.
● Maximum loan amounts for different business types and sizes: Phase I eligibility cannot exceed $300,000. Overall, the absolute legislative limit for an EIDL is $2,000,000. This limit can only be exceeded if the business successfully qualifies for a Major Source of Employment (MSE) waiver.
● Interest Rates and Terms:
● SBA-established interest rates for the EIDL: By statute, the SBA can only authorize EIDLs at the “No Credit Elsewhere” (below-market) interest rate.
● Loan terms (e.g., repayment schedules, deferral periods): The maximum term for a disaster loan is 30 years. Repayment is determined using the Fixed Debt Method, where the target monthly payment is generally set at one-third of the business’s Cash Available to Service Additional Debt (CASAD). The first payment is typically deferred until 5 months from the date of the Promissory Note.
● Use of Funds:
● What EIDL funds can and cannot be used for: EIDL proceeds are strictly limited to working capital, notes payable, and accounts payable essential to the continued viability of the business.
Module 4: Loan Usage and Restrictions
● Eligible Uses of EIDL Funds:
● Detail on what businesses can use the funds for: Funds must be used to meet ordinary and necessary operating expenses, such as payroll, rent, utilities, and fixed debt payments that the business could have otherwise paid had the disaster not occurred. ● Prohibited Uses:
● Examples of prohibited uses: EIDL funds may strictly not be used for the payment of dividends or bonuses, the expansion of facilities, the acquisition of fixed assets, the repair of physical damages, or the refinancing of long-term debt. Funds also cannot be used to pay down direct Federal debts, with the exception of IRS obligations.
● Clarification on fund misuse consequences: Borrowers must adhere to the authorized use of proceeds listed in the Loan Authorization and Agreement (LAA), as failing to comply with loan conditions can lead to severe penalties or cancellation. ● Managing Funds Effectively:
● Tips for proper allocation of funds: Businesses must manage their cash flow specifically to alleviate the economic injury without commingling funds for prohibited expansion projects.
Module 5: Reconsideration and Loan Increases
● Reconsideration Process:
● Step-by-step process for requesting a reconsideration: If an application is declined, the business has the right to request reconsideration. The request must be in writing and received within 6 months from the date of the initial decline letter.
● Key information and documentation needed: The request must contain significant new information that overcomes all of the initial decline reasons. The applicant must also submit a newly completed and dated IRS Form 4506-T.
● Loan Increases:
● How to apply for an increase in loan amounts: A borrower must submit a written request to cover additional financial needs as soon as possible after discovering the shortfall. The borrower must prove the increase is essential for the business to continue, and the request must be based on events beyond their control that occurred after the original approval.
● SBA processes for evaluating and approving loan increase requests: All loan increase requests for EIDLs are strictly processed using the detailed Phase II Needs Analysis method.
Module 6: Real-World Examples and Case Studies
● Case Studies:
● Examples from various business sectors: Due to the intense underwriting standards required for large federal disaster loans (from $1 million to $2 million), wait times can reach eight to ten months, threatening businesses with imminent closure and layoffs. To illustrate a successful survival strategy, a private non-profit named SBA Disaster Loan Agency provided rapid, interim bridge funding to businesses during the federal processing time. This allowed the businesses to make payroll and survive until the government funds were disbursed to pay off the bridge loan.
● Another case study illustrating size eligibility involves a multi-operation business like “Joe’s Fish House, Inc.,” which operated both a commercial fishing vessel and a wholesale seafood operation. To secure SBA funding, the business had to undergo a size determination where the SBA calculated the gross receipts for each operation separately; the sector generating the most revenue dictated the primary NAICS code and the ultimate size standard applied to the application.
● Key Takeaways:
● Insights and lessons learned: Businesses facing long federal processing times should proactively seek interim or bridge financing to maintain working capital without incurring undue hardship. Furthermore, meticulous organization of financial records is critical, as the SBA relies on official tax transcripts to verify primary industry status, cash flow, and overall repayment ability.
Module 7: Live Q&A Sessions
● Open session: (Instructor will now open the floor to address specific applicant scenarios, clarify Phase I vs. Phase II MCM calculation mechanics, and address any other points covered in the course directly aligning with SOP 50 30 9 guidance.)
Conclusion
● Recap of all modules covered: We have navigated the EIDL program from identifying your NAICS size standard and preparing tax and liability documents, to avoiding application pitfalls, understanding Phase II working capital limitations, and successfully filing for reconsiderations or increases.
● Next steps after course completion: Prepare your SBA Form 5, SBA Form 413, SBA Form 2202, and IRS Form 4506-T, and submit your application via the SBA Electronic Loan Application (ELA) portal before the deadline.
Feedback Collection
● Collect participant feedback: Please ensure you fill out the course feedback forms to help us continuously improve this curriculum for future disaster recovery training.