Economic Injury Disaster Loan Program formed following September attacks

The purpose of the Sept. 11 Economic Injury Disaster Loan (EIDL) program is to provide funds to eligible small businesses to meet ordinary and necessary operating expenses it could have met, but is unable to meet as a direct result of the destruction of the World Trade Center or damage to the Pentagon on Sept. 11, or as a direct result of any Federal action taken between Sept. 11, and the effective date of the regulations implementing this program. These loans are intended only to provide the amount of working capital needed by a small business to pay its necessary operating expenses and obligations until operations return to normal. The purpose of these loans is not to cover lost income or lost profits, or losses attributable to an economic downturn. EIDL funds cannot be used to refinance long-term debt or to expand a business. Federal law requires the Small Business Administration (SBA) to determine whether credit needed to accomplish full recovery is available from non-government sources without creating an undue financial hardship to the applicant. The law calls this credit available elsewhere. Generally, SBA determines over 90 percent of disaster loan applicants do not have sufficient financial resources available without the assistance of the Federal government. Because economic injury disaster loans are taxpayer subsidized, Congress intended that applicants with the financial capacity to fund their own recovery should do so and therefore are not eligible for EIDL assistance. Credit requirements’SBA’s assistance is in the form of loans, as such SBA must have a reasonable assurance that such loans can and will be repaid. Collateral requirements’loans of $5,000 or less do not require collateral. Loans in excess of $5,000 require the pledging of collateral to the extent that it is available. Generally, the collateral will consist of a first or second mortgage on the business property. In addition, personal guaranties by the principals of the business are required. The SBA will not decline a loan for lack of collateral, but you must pledge available collateral. Interest Rate’Interest rates are determined by formulas set by law and are recalculated quarterly. The maximum interest rate for this program is 4 percent. Loan Term’The law authorizes loan terms up to a maximum of 30 years. SBA determines the term of each loan in accordance with the borrower’s ability to repay. Based on the financial circumstances of each borrower, SBA determines an appropriate installment payment amount, which in turn determines the actual term. Loan Limit’The actual amount of each loan, up to the maximum amount of $1,500,000, is limited to the actual economic injury as calculated by the SBA, not compensated by business interruption insurance or otherwise, and beyond the ability of the business and/or its owners to provide. If a business is a major source of employment, SBA has authority to waive the $1,500,000 limit. Insurance Requirements’To protect each borrower and SBA, appropriate insurance is required of borrowers. Borrowers of all secured loans (EID loans over $5,000) must purchase and maintain full hazard insurance for the life of the loan. Borrowers whose collateral property is located in a special flood hazard area must also purchase and maintain flood insurance for the full insurable value of the property for the life of the loan. The filing period to apply for economic injury loan assistance began on Oct. 22, and ends on Jan. 21, 2002. For more information, please contact a counselor at the Angelo State University Small Business Development Center at (915) 942-2098 or SBDC@angelo.edu. Business Tips is provided by Ms. Pamela Brown, director and certified business advisor IV, at Angelo State University’s Small Business Development Center. For more specific information on the topic of this Business Tips article, contact her at Pamela.Brown@angelo.edu.

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