Economic Injury Disaster Loans, first introduced by the 2020 CARES Act, are a special program of the Small Business Administration designed to reach the smallest business, including sole proprietors and platform workers, who may not have been able to fulfill the initial requirements of the larger Paycheck Protection Program (although many of those requirements were loosened as the pandemic dragged on).
The essential thing to know about EIDL is that it has two components:
- “advances,” whether initial, Targeted, or Supplemental Targeted, which do not have to be repaid;
- and “loans,” which are fixed-rate 30-year loans which do have to be repaid (for now).
EIDL still has a lot of money left
After providing a first round of advances and loans, the Small Business Administration determined it had enough money to issue additional Targeted and Supplemental Targeted advances. After providing those, it determined it still had enough money to issue Targeted advances (for those who applied by January 31, 2022) and to issue additional loans.
When you log into your SBA account, which has an extremely primitive interface, this appears as an option in the top right of the page, under “Status,” to “Request more funds.” Clicking the button brings up a series of ominous pop-up boxes, but when you click through those, you eventually arrive at a “slider” to select how much money you want to request. I believe this is based on the number of employees you reported when you initially applied for your loan. As a sole proprietor I was eligible for an initial $3,000 loan, and my loan modification slider went up to $15,000. I dragged it all the way up, hit submit, and waited.
Within a business day or two I received an e-mail asking me “complete the steps necessary to continue my modification request.” When I logged in, I saw two new buttons had appeared in my portal. One asked me to upload my “business tax return,” and the other asked me to complete Form 4506-T, authorizing SBA to request my tax transcript directly from the IRS.
Since I file my taxes using Schedule C, I wasn’t sure what they would accept as a “business tax return,” but I uploaded a 4-page PDF version of my personal tax return, with the two pages of Form 1040 and the two pages of Schedule C. Then I completed Form 4506-T electronically.
Modification approval and payment
The next step was to wait for a loan officer to decide my application, and I’d read online that when it first launched, this process could take months. In my case, about a week later I received another e-mail asking me to “continue” my loan modification. Another button had appeared in my portal asking me to sign an updated note with the new loan and monthly payment amounts. A few days later I received another e-mail stating my loan had been approved.
I received the distribution of the $12,000 difference between my original loan and my modified loan just about 2 weeks after beginning the process — much faster than the months people reported waiting at the beginning of the loan modification period.
Why borrow more?
This is the obvious question you should have at this point: even if you’re eligible for a loan modification, if you don’t actually need the money, why request it? Remember the four key virtues of Economic Injury Disaster Loans. They are:
- long-term (30 years);
- low-interest (3.75% APR);
- unsecured (for amounts up to $25,000, and secured only by business assets after that).
Let me be frank: I would borrow an unlimited amount of money on those terms. First, thanks to inflation (not hyper-inflation, not pandemic inflation, just boring old inflation) the value of the monthly payment ($74, in my case) will fall over time, so you will repay the loan with much less valuable dollars than the ones you borrow today. Second, the loan comes with the option to repay at any time, so if your more lucrative investment opportunities (like the Series I Savings Bonds I wrote about here and here, or the rewards checking accounts I continually flog) dry up, you can immediately repay the loan with the proceeds. And finally, since the debt is unsecured, you can use the cash to pay down or pay off secured debt (like car loans or mortgages), or debt that can’t be discharged easily in bankruptcy (like student loans), and protect yourself from repossession, foreclosure, or debt peonage down the road.
In other words, the loan comes with such a low interest rate, and such favorable terms, that you need not use it to recover from the economic consequences of the pandemic, but also to insure your assets and yourself against future economic calamity!
The outlier possibility: debt forgiveness
All of the above is a way of saying that the distribution of outcomes from an EIDL modification is overwhelmingly biased towards the upside. Whether you use the proceeds to invest in higher-yielding securities or bankruptcy-protected retirement accounts, redeem secured loans, or pay down high-interest loans, their low, fixed interest rate and unsecured nature should make EIDL loans attractive to anyone and everyone who’s eligible.
But I want to note a final point which puts icing on the cake: the non-zero possibility of EIDL loan forgiveness. From a political economy perspective, the logic is obvious. First, EIDL is widely distributed across every state and territory, meaning the credit for loan forgiveness would accrue to every member of Congress. Second, EIDL are distinguished from Paycheck Protection Program loans, in that they have not acquired the reputation of being exploited by large corporations to hand out bonuses to CEO’s and dividends to shareholders. Instead, they were largely distributed to very small business, sole proprietors, and platform workers. And finally, 30 years is a long time under finance capitalism. When the next crisis of late capitalism comes along in 1-10 years, there will be millions of people with billions of dollars in loans outstanding facing bankruptcy in order to discharge these loans, and the demand to forgive them, or refinance them on even more favorable terms, strikes me as inevitable.