Economic injury disaster loans

This is the second article in our series of educational posts and resources for the ARM industry to tide over this pandemic. Sign up here to keep yourself updated.

Debt collection agencies can utilize Economic Injury Disaster Loan (EIDL) for working capital requirements while PPP can be leveraged to protect jobs and maintain payrolls for your agents and employees. Eligibility and benefits of forgivable loans under Paycheck Protection Program (PPP) can be found here.

What is the Economic Injury Disaster Loan Program (EIDL) and how does it help the ARM and Collections industry?

Under the CARES Act, the federal government has also strengthened disaster relief loan program for small businesses affected by the COVID-19 outbreak.

Debt collection agencies can now borrow longer tenure loans directly from the U.S. Small Business Administration on favourable terms. Unlike PPP, the EIDL program doesn’t have loan forgiveness provisions, but agencies that are already beneficiaries under EIDL can refinance their loans under forgivable terms via PPP.

Small businesses across all 50 states with not more than 500 employees are eligible for EIDL loans between Jan 31, 2020 and Dec 31, 2020. The SBA disaster loan is designed to cover regular cash outflows like payroll for employees, rent, and money owed to other businesses.

Economic Injury Disaster Loans Summary:

  • Debt collection agency must be functional as of Jan 31, 2020.
  • EIDL program lends up to $2 million
  • Low fixed interest rates of 3.75% with tenure available up to 30 years
  • No upfront fees or prepayment penalties
  • Emergency grant up to $10,000 within 3 days for working capital needs
  • Agencies can simultaneously avail loans via EIDL and PPP

Photo by Etienne Martin on Unsplash

EIDL loans have been provided by SBA to businesses affected by natural disaster. Since President Trump has designated the entire country as a disaster zone, all businesses are eligible for the program under CARES Act. Application for EIDL loans should be submitted directly to the SBA, while PPP loans will be available from SBA-approved lenders.

Alternative Options for Small Businesses

Deferred Payroll Taxes: The CARES Act will allow debt collection agencies to defer Social Security payroll tax between Mar 27, 2020 and Dec 31, 2020 in two installments to until the end of 2021 and 2022.

Carry-Back Losses: The CARES Act allows small businesses in ARM industry to carry back non operating losses from 2018, 2019, and 2020 to the previous 5 years, which will allow businesses access to immediate tax refunds. More details can be found here.

We strongly suggest debt collection agencies and our partners in the ARM industry to consider applying for economic assistance programs like EIDL and PPP after consulting with appropriate legal and tax advisors.