Small businesses struggling financially amid the coronavirus pandemic would benefit from a bill in Congress that seeks to increase funding for disaster-relief loans and grants.
The bill, sponsored by Senator John Cornyn (R-Texas) with bipartisan support, would provide the Small Business Administration (SBA) with an additional $180 billion to fund the Ensuring Increased Disaster Loans (EIDL) and EDIL Advance programs
The bill would also require that the SBA follow Congress’ mandate that EDIL loans be capped at $2 million, not the $150,000 set by the SBA. Also, the bill requires the SBA to follow Congress’ mandate that the EDIL Advance grants be capped at $10,000. Previously, the SBA capped those grants at $1,000 per employee, up to $10,000. The Advance program had shut down in mid-July since the all of the funds allocated to it had been disbursed.
Under the EDIL program, small businesses and non-profits are required to have suffered a substantial economic injury relating to the COVID-19 pandemic. The term of a loan is up to 30 years with a 3.75 percent interest rate. Repayment is deferred for one year. An EDIL Advance grant does not have to be repaid.
Among the restrictions in the EDIL program is that recipients are prohibited from paying themselves dividends during the life of the loan. If the business wants to relocate, it needs the permission of the SBA. If the business has already received a Paycheck Protection Program (PPP) loan, the EDIL funds may not be used for the same purpose.
Failure to follow the restrictions set forth in the EDIL program can result in civil and criminal penalties. Indeed, business lawyers and financial professionals familiar with the program believe many loan recipients are in violation of the program terms because they did not incur the “substantial” economic damage required, have spent loan proceeds on prohibited expenses or have paid the owners dividends or their personal expenses.
Hayes, Berry, White & Vanzant, LLP represents North Texas businesses in a range of legal matters. Call us at 940-230-2386 or contact us online to schedule a consultation. We have four North Texas offices, located in Denton, Flower Mound, Gainesville and Celina.
