As Washington, DC tries to strike a new balance, millions of small businesses are still swaying from the effects of the pandemic. One tool that could work again is a restarted EIDL program.
The Small Business Administration’s Economic Injury Disaster Loan (EIDL) program consists of loans granted directly by the SBA to help businesses recover from a disaster. These are low-interest loans that pay back over a long period of time and can typically be as high as $ 2 million, depending on the size of the company and the scope of the disaster. Each loan is usually drawn individually.
When Covid-19 hit, the SBA had an overwhelming and daunting task of getting money into the hands of tens of millions of companies quickly. Initially, the EIDL program ran the traditional way: However, the program offered upfront grants of $ 10,000. The SBA later adjusted the advances, allowing only $ 1,000 per employee up to $ 10,000.
In May, the SBA made the decision to cap loan amounts to $ 150,000 and to change the underwriting process to be almost entirely automated. Loans of $ 150,000 or less were deposited into business owners’ bank accounts within 48 hours of application. It was almost too good to be true. According to SBA Inspector General Hannibal “Mike” Ware, there are many fraudulent loan claims.
EIDL loans are still available until the funding is used up. EIDL Advance Loans are no longer available as the $ 20 billion allocated to the program ran out on July 11th.
Let us all give the benefit of the doubt and assume that the best decisions at the time were made by those in charge who were given a daunting challenge. But now, a few months later, millions of companies are still in dire financial straits. Some of these companies received the maximum of $ 150,000 and could have been eligible for much more if the program had worked in its traditional way.
US Senator John Cornyn (R-Texas) has proposed a bill that will allocate $ 100 billion to the EIDL program and $ 80 billion to the EIDL Advance program. While I agree with the need to allocate more funding to the EIDL program, there is currently no need to reimburse the EIDL advance program. I agree that the SBA must lift the cap of $ 150,000 and restore the cap of $ 2 million. The SBA also needs to send monthly reports to the House and Senate committees to keep everyone 100 percent accountable. Restoring the old underwriting process also adds accountability and reduces fraud.
It is not too late to reopen the EIDL program for businesses that still need help. Many companies have seen dramatically lower revenues this year compared to last year, and most of them have already exhausted their paycheck protection program loans. Should the program reopen – as it was designed for loans of up to US $ 2 million – the EIDL could serve as a lifeline for many companies.
The opinions expressed by Inc.com columnists here are their own, not those of Inc.com.
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