Over the past several weeks, the SBA has been criticized for its administration and oversight of its Paycheck Protection Program (PPP), which offers forgivable loans designed to be spent on payroll expenses. But little attention has been paid to the SBA’s second COVID-response loan effort: the Economic Injury Disaster Loan (EIDL) program. EIDLs provide small businesses affected by disasters with emergency loans. Over the past few decades, the SBA has provided EIDLs after major disasters such as Hurricane Katrina and 9/11.
In response to today’s crisis, Congress created a special carveout for EIDLs that allowed applicants to receive a $10,000 advance on their loan. Small businesses do not need to repay the advance, even if the SBA ultimately rejects their application, meaning these advances are in effect $10,000 grants that should, in theory, be available to all small businesses affected by the pandemic.
The importance of these grants cannot be understated, yet media coverage of the program has been lacking. EIDL grants are the only source of funding that small businesses affected by the pandemic can receive with no strings attached. PPP loans, which must largely be spent on payroll expenses, are of limited use to many businesses that have few employees and no current revenue, yet may face high rent expenses. EIDL grants, on the other hand, do not have the same strings attached.
Yet, in its two rounds of funding, Congress appropriated only $20 billion to the EIDL grant program. That’s just about 3% of what it appropriated to the PPP. And while $20 billion might sound like a hefty sum, it is actually only enough to provide $10,000 grants to about 6% of the country’s 30 million small businesses. No wonder very few applicants have actually seen any money yet.
Beyond the lack of funding, the SBA has also failed to issue EIDL grants to small businesses in a timely manner. The CARES Act requires the SBA to send grants to small businesses within three days of receiving their applications. Yet many applicants waited weeks to receive their grant or didn’t receive anything at all. Some small businesses have even sued Small Business Administrator Jovita Carranza for failing to properly carry out the CARES Act EIDL program as Congress intended. They also alleged that the SBA improperly limited the EIDL grant amount small businesses could receive to $1,000 per employee.
It is clear that the EIDL grant program is severely underfunded, meaning these vital grants are not getting to the vast majority of small businesses. Without immediate access to capital, many genuinely small businesses will have to close their doors for good. Meanwhile, Treasury is directing the Federal Reserve to send trillions in liquidity to big businesses that often have the resources to weather the economic crisis.
Congress ought to protect businesses too small to hire lobbyists and provide the SBA with significantly more EIDL funding to ensure the survival of these businesses.