Eidl Loan Increase: What's The Basis?

The Small Business Administration (SBA) offers Economic Injury Disaster Loans (EIDLs) to small businesses facing financial hardship due to the Covid-19 pandemic. While the EIDL has provided a lifeline to many businesses, some borrowers may find that they need additional funds to fully recover or expand their operations. This has prompted discussions and requests for EIDL loan increases, with borrowers seeking to modify their loan agreements and access higher loan amounts. The SBA has responded by tripling the funding limit to $500,000 and extending the coverage period to 24 months. However, it's important to note that an EIDL loan increase does not affect the shareholder's basis in an S corporation.

EIDL loan increase approval process

The Economic Injury Disaster Loan (EIDL) program offers up to a $2 million increase in loans to help businesses affected by a declared disaster. The approval process for an EIDL loan increase request involves the following steps:

Application Submission:

First, applicants must submit their EIDL loan increase request through the Small Business Administration (SBA) website. This involves providing detailed information about their business and the loan amount requested. For loans over $500,000, it is advised to seek expert assistance.

Review by Loan Officer:

Once the application is submitted, a loan officer will review the request. They may contact the applicant by phone to clarify information or request additional documentation. This could include tax transcripts from the IRS and reported revenue numbers.

Approval and Modification:

If the loan officer approves the request, the applicant will receive an email notification. They will then need to log in to their SBA portal to approve the latest loan offer and confirm the funding option. This step may involve reviewing and signing loan documents, such as the Loan Agreement, Note, Guarantee, and Related Documents.

Final Approval and Funding:

After signing the EIDL loan increase document, applicants will need to wait for the funds to be wired to their bank account. This process can take some time, and the SBA is working to increase efficiency.

It is important to note that the EIDL loan program has undergone changes, and the approval process may be simplified further to expedite decisions. Additionally, there may be state-specific factors to consider, as seen in Illinois, where varying factors come into play for requests under or over $500,000.

EIDL loan and S corporation owner basis

The Economic Injury Disaster Loan (EIDL) is a relief option offered by the Small Business Administration (SBA) to provide support to small businesses facing hardship due to the COVID-19 pandemic. The EIDL program is currently not accepting new applications, increase requests, or reconsiderations.

Regarding the impact of an EIDL loan on S corporation owner basis, it is important to understand the concept of stock basis and debt basis in the context of S corporations. The taxable amount of a distribution to a shareholder of an S corporation depends on their stock basis. The shareholder's stock basis is adjusted annually based on the S corporation's operations, and it increases or decreases according to specific ordering rules.

In the case of an EIDL loan, it is treated the same as any other loan for an S corporation. It does not increase the shareholder's basis. For example, if an S corporation took an EIDL loan of $80,000 in 2020 and also received a Paycheck Protection Program (PPP) loan that was forgiven in the same year, the EIDL loan amount would not increase the shareholder's basis.

To address situations where there is an excess distribution over basis, such as the example mentioned, there are a few options. One approach is to reclassify the excess as loans and have the shareholder pay interest on the loan to the corporation. It is essential to continue tracking the basis to ensure compliance with tax regulations. Additionally, shareholders should be aware of the at-risk and passive activity loss limitations, as they may impact their ability to claim losses or deduction items, even with adequate stock and/or debt basis.

EIDL loan increase requests

The Small Business Administration (SBA) has announced that it will accept Economic Injury Disaster Loan (EIDL) increase requests through the end of the week of May 2, 2022, for pandemic-related funding. The EIDL loan program is coming to an end, and applicants are urged to act with urgency.

The steps to request an EIDL loan increase are as follows:

• Confirm your loan eligibility and review the SBA Frequently Asked Questions (FAQs).
• Log into your account on the SBA Portal to submit a loan modification request to your existing EIDL loan. The portal is located online at covid19relief1.sba.gov. The portal was only accessible until May 16, 2022.
• Complete the SBA Portal steps and upload the requested documents, including a new version of your IRS Form 4506-T for the COVID EIDL disaster.
• Respond to any SBA requests for signatures and documents by the specified deadline.

If your EIDL SBA Portal does not show a "Request More Funds" button, you must submit your loan increase request manually by email. This email should be sent from the address the SBA has on file for you, which is the email for your SBA portal login. The subject line should read, "EIDL Increase Request for [insert your 10-digit EIDL application number]". The body of the email should include your application number, phone number, business name, and specific reasons for your increase request, including how your business has been economically impacted by the COVID-19 pandemic.

EIDL loan and business growth

The Economic Injury Disaster Loans (EIDL) were essential in supporting businesses during the COVID-19 pandemic. However, the EIDL and PPP (Paycheck Protection Program) loans are no longer available, and businesses must now shift their focus to other financing solutions to manage operations, seize growth opportunities, or refinance debt.

The EIDL loan is different from traditional SBA loans as it primarily focuses on providing financial relief to disaster-affected businesses rather than promoting their growth and expansion. The loan proceeds can be used for various business purposes, including working capital, payroll expenses, and accounts payable.

If you have already received an EIDL loan, you may consider requesting an increase. The SBA has more than tripled the amount of funding accessible to small businesses, with the maximum loan limit now set at $500,000. To request an increase, you can follow the steps outlined on the SBA portal. Once your request has been reviewed and approved by a loan officer, you will need to approve the latest loan offer and sign the closing documents.

It is important to note that most government-issued loans, including SBA EIDL loans, are generally not dischargeable in bankruptcy. However, in the case of Chapter 7 bankruptcy, while the debtor may still be obligated to repay the loan, they can benefit from eliminating other debts and creating a more manageable repayment plan. Chapter 11 bankruptcy allows businesses to restructure and renegotiate the terms and conditions of their loans, while Chapter 13 bankruptcy offers similar modifications to sole proprietors and individuals.

EIDL loan and business financial health

The COVID-19 pandemic has had a significant impact on small businesses, and many have had to resort to taking out loans to stay afloat. The Economic Injury Disaster Loan (EIDL) is a US Small Business Administration (SBA) program that provides low-interest loans to small businesses and non-profits that have suffered substantial economic injury and are unable to meet their financial obligations and pay their regular operating expenses. The EIDL amount depends on the financial impact experienced and the company's financial needs.

The EIDL program has been a lifeline for many small businesses, but it's important to remember that it is a loan that must be repaid. The SBA offers guidance and potential solutions to borrowers facing financial difficulties in repaying their loans. They may also be aware of additional resources or programs that can help borrowers navigate challenges during the repayment process. The SBA may consider modifying loan terms to accommodate borrowers' financial situations.

In addition to the standard EIDL, the SBA also offers a COVID-19 EIDL specifically for small businesses impacted by the pandemic. The Hardship Accommodation Plan (HAP) provides debt relief for small businesses struggling to repay their COVID-19 EIDL loans. Borrowers can apply for a minimum payment reduction of 10% for up to six months, with the possibility of reapplying for additional reductions if they make timely payments.

It's important to note that the EIDL loan increase approval process can be lengthy, and as of July 2021, only 16% of small business owners who applied for an increase had received approval. The process involves a loan officer reviewing the application, tax transcripts, and reported revenue numbers. If approved, borrowers will receive an email and need to take further action through the SBA portal.

Frequently asked questions