Biden Expanding COVID-19 EIDL Program

By Gloria Larkin

Many small businesses are feeling stuck. In some cases, their economic recovery has stalled and may even be backsliding. Relief funds, which can result in economic hangovers anyway, are running out. And bottlenecks have begun to appear in the credit market.

To address these issues, President Joe Biden recently announced an expansion of the COVID-19 Economic Injury Disaster Loans (EIDL) program, and in the process made changes to make it more accessible for small business owners.

Two Sides To Every Issue

There are two sides to this issue for small businesses, according to the Bipartisan Policy Center, the Goldman Sachs’ 10,000 Small Businesses Voices (or 10KSBV) program and Center Forward.

As the owners work forward to recovery, many are seeking fresh sources of credit to help them hire and invest in the future. Yet, they’re finding that the pandemic’s negative impact on their balance sheet is hindering that access, as lenders and the Small Business Administration (SBA) evaluate their 2020 financial performance. That issue will hinder many small business owners, at least in the near term.

EIDL Structure

The structure of EIDL relief program means the SBA has priority liens, and subsequent lenders must seek subordination from the SBA. The agency is not actively barring further credit, nor is it resistant to subordination; but the sheer volume of EIDL assistance is creating a bottleneck in the credit market.

Exacerbating these challenges is the recent resurgence of COVID-19 and the Delta variant, particularly in certain parts of the country. Many small business owners, by nature and necessity, tend to be optimists and according to various surveys still see a bright economic recovery, but that optimism is being tested in some quarters.

Many small businesses close to exhausting Payback Protection Program (or PPP) relief funds and a smaller percentage of them think they can maintain payroll after those funds are gone. For many, revenues have not yet recovered from the sharp declines of 2020. In addition, the share of small businesses reporting a weekly decline in revenues has ticked up slightly in July, with the share reporting a weekly increase in revenues has fallen three percentage points since April, according to the U.S. Census Bureau’s Small Business Pulse Survey.

EIDL Program Updates

Hence the update to the EIDL program. Here’s a thumbnail rundown of the changes coming and what they might mean for small business owners:

• Expanding the allowable uses of EIDL loans
• Increasing the cap from $500,000 to $2 million
• Allowing small business owners who have received EIDL funds of less than $500,000 to increase their loan amount and improve their access to capital

Still, small businesses’ economic outlook continues to improve. New business formation has surged at a record pace, according to a study by the National Bureau of Economic Research; in the latest Small Business Index from the U.S. Chamber of Commerce and MetLife, 57 percent expect their revenue to increase for 2021; and as of mid-July, just 14 percent of small businesses said they would need financial assistance or additional capital in the next six months, again according to the Small Business Pulse Survey.

Many of the adjustments to the EIDL program are a product of the access to capital report that originated directly from the Goldman Sachs’ 10KSBV community, which has been vocal about its needs.

So the new loan guarantee program — with long repayment terms, flexible uses, and low interest rates — can help bring certainty and security to small businesses as they rebuild. The government also needs to ensure that pandemic-induced damage to small business balance sheets, and small firms’ use of relief funds, don’t hinder forward-looking efforts to access credit.

Gloria Larkin is President and CEO of TargetGov, American Express Procurement Advisor and a national expert in business development in the government markets.  Email glorialarkinTG@targetgov.com visit www.targetgov.com or call toll-free 1-866-579-1346 x 325 for more information.