December 22, 2022

CARES Act Relief Radar: EIDL Recipients May Require SBA Subordination for New Loans

Although many Coronavirus Aid, Relief and Economic Security (CARES) Act programs have come to an end, they continue to have an enormous impact on businesses. With the SBA and IRS continuing to release announcements and clarifications around relief programs, we’re breaking down important updates to explain what they mean to your business. See the latest clarifications below.  

12/22/22: Pandemic EIDL Recipients May Require SBA Subordination Before Applying for New Loans 

Businesses seeking to expand or purchase new equipment may face a new hurdle if they received an Economic Injury Disaster Loan (EIDL). Before COVID-19, the EIDL program was more commonly used for natural disasters such as floods, tornados and hurricanes, with the distributed loans averaging around $30,000 to $50,000 or less. With the onset of COVID, the program was expanded, and loan amounts could range between half a million to upwards of $2 million.  

While many of the businesses that took part in the first round of EIDL fund disbursements have already begun the repayment process, seeking conventional loans from the bank could be a complicated process.  

While many of the businesses that took part in the first round of EIDL fund disbursements have already begun the repayment process, seeking conventional loans from their bank could be a little more cumbersome than before. If a business that received EIDL funding attempts to obtain a loan in a more conventional way, like from a bank, the bank could reject the loan on the basis that the EIDL repayments are the priority. Unless a business receives a subordination from the Small Business Administration (SBA) for their EIDL funds, any other conventional loans they receive will come in second place in terms of repayment priorities.  

To subordinate those EIDL funds and free up your business for more traditional forms of borrowing, contact the SBA and complete a subordination request form. The process to subordinate loans may be lengthier than in previous years due to the volume of borrowers and the much higher dollar amounts that were distributed. Forward planning and careful consideration are key in the pursuit of growth in the coming year. 

12/12/22: SBA Extends Storm-Related EIDL Payments, Not Pandemic EIDL Payments

Some recipients of pandemic era Economic Injury Disaster Loans (EIDL) may have been confused by a message from the Small Business Administration (SBA) extending payments on those loans by another 12 months. It should be noted that this announcement pertained specifically to loans made on or after September 9, 2022. These loans were related to recent storm and hurricane events rather than loans associated with the pandemic. Because destructive storms and pandemics can be considered disasters, they both qualify as EIDL events.  

The pandemic related EIDL program ended on May 6, 2022 and many of the early EIDL recipients have already begun the repayment process and should continue to make those payments to remain in good standing. Later recipients of EIDL funds are still on a deferral and should follow SBA EIDL guidelines to determine when their repayment process begins.   

As more information is released concerning CARES Act programs and other COVID-19 pandemic related relief funding, Anders will continue to provide updates to this post to empower business owners and leaders to know exactly where you stand in your CARES Act journey. Contact an Anders advisor below to learn more about the programs designed to help businesses thrive in a post-pandemic world. 

10/19/22: IRS Warns of Third Parties Promoting Improper Employee Retention Credit Claims 

The Internal Revenue Service (IRS) issued a warning to employers to beware of third parties urging them to claim Employee Retention Tax Credits (ERTC) when they may not qualify for it. Some of these third parties have taken improper positions related to taxpayer eligibility for and computation of the credit. These third parties commonly charge large upfront fees or fees contingent upon the amount of the refund. They may also not inform taxpayers that wage deductions claimed on the business’ federal income tax return must be reduced by the amount of the credit.  

The IRS has encouraged businesses to be wary of advertisements and direct solicitations promising tax savings that seem too good to be true. The IRS also added a reminder that it’s the taxpayer who is ultimately responsible for the information reported on their tax returns, meaning the taxpayer would be required to repay the credit, along with penalties and interest, while the third party keeps their fee and moves on. 

Stay tuned for more CARES Act clarifications or learn more about our COVID-19 Business Recovery services.

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