Small businesses impacted by natural disasters often need to borrow money to rebuild and get operational again. Although they can borrow money from family members, or friends, EIDL is another alternative that should be considered in times like this.
What is an EIDL Loan?
Economic Injury Disaster Loans (EIDL) are loans to help local businesses recover from unexpected economic losses when the business is unable to obtain a Small Business Administration loan or other federal disaster assistance.
EIDL Loans can be used for any purpose within eligible small businesses, except they cannot be used to repay existing debt.
Eligible uses include, but are not limited to:
- Inventory and equipment purchases
- Relocation expenses in the case of damage that makes a business site unsuitable for reopening
- Costs associated with starting up operations after an extended closure
Here are 5 Reasons to consider taking an EIDL loan
1. You’re unsure about EIDL Loan Uses
EIDL loans might be confusing because they do not come with specific instructions about how the proceeds will be used. As a result, many small business owners might wonder about their options in such a situation.
According to Lantern by SoFi, loans from an EIDL can’t be used for the following:
- Payments to owners, partners, executives, directors, or stockholders, save when tied to the execution of services for the applicant’s benefit
- Stockholder/principal loan repayment
- Fixed asset expansion or replacement
- Physical damage repair or replacement
- Long-term debt refinancing
- Paying off or off loans given or held by the federal government
2. You’re Worried about your Credit
The SBA loans (including 7(a) and PPP programs) are reported by individual lenders. The agency itself does not submit any information to credit bureaus, so these should not show up on your personal or business report as an entry from them unless you’ve got $25k+ worth of UCC-1 filings under their belt!
3. You’re Worried about Loan Repayment
Many company owners are still concerned about the future of their companies and are hesitant to incur debt.
Besides that, the EIDL interest rate is low, there are other perks to taking an EIDL loan
- Repayment terms of up to 30 years are available
- Payments are postponed for a year
- There is no collateral required for loans of less than $25,000
- Personal guarantees are not required for loans of less than $200,000
4. You’re Uncertain of Whether you Need the Loan
There is some reluctance among small business owners to take on debt. Sometimes, these businesses are not sure if they need the money or not. A good rule of thumb is to aim to have at least 10% of your startup capital as an emergency cash fund.
5. You Want a forgivable Loan
Grants (advances) from EIDL are not required to be returned. Economic Injury Disaster Loans, on the other hand, are not forgiven and must be repaid. Some borrowers applied for EIDL to get a grant of up to $10,000. (The grant is administered at a rate of $1000 per employee.)
On the other hand, the loan requires you to agree to the SBA’s loan terms before receiving the funds.
In conclusion, taking an EIDL loan is the right choice for you if you are eligible for it. If that is not the case, try to apply again next year since EIDL loans are issued once a year!
