June 9, 2020
NPA’s Team GRC has learned from several pawnbrokers of their EIDL applications being denied by the Small Business Administration (SBA). The SBA’s denial merely states that the applicant’s “business activity is not eligible”.
Team GRC’s additional research returned the information that pawn shops are eligible for EIDLs if more than 50% of their income comes from business activity other than the collection of interest. This benchmark is consistent with the revenue test for the Paycheck Protection Program (PPP) loans that are built on Section 7(a) of the Small Business Act. The SBA’s May 31, 2018 guidance on EIDLs under Small Business Act Section 7(b) states – on pages 70 and 71 — that “pawn shops” are eligible if they meet that income test. The CARES Act did not impose any new limitations on the EIDL program; rather, the CARES Act removed some restrictions that Section 7(b) traditionally imposed, such as the requirement for owner guarantees and collateral.
We drafted the following template “request for reconsideration” letter that you can edit to your own situation. The letter cites the link to SBA’s 2018 guidance and includes copies of the two relevant pages as an attachment.
EIDL Denial Letter Template (WORD Format)
GRC Update EIDL Seeking Reconsideration
Our research also produced more information on how the SBA handled post-CARES Act EIDL applications:
- If you applied for an EIDL from April 2, 2020 to April 15, 2020, SBA publicly promised to process applications on a first-come, first-served basis.
- The CARES Act offered EIDLs up to $2 million at 3.75% interest on a payment schedule up to 30 years. Applicants could ask for $10,000 advances of these funds to be made available quickly.
- Without making a public announcement, the SBA capped the sums that it would award in EIDLs to $1,000 per employee and no more than $10,000 per application regardless of the total amount for which the business applied. We were informed by one NPA member of receiving only the $1,000-per-employee sum in the advance, and then later was denied the balance of funding requested.
- On April 15, 2020, the SBA closed the EIDL application portal, apparently due to having committed all funding that Congress appropriated in the CARES Act.
- On April 24, 2020, the President signed the Paycheck Protection Program and Healthcare Enhancement Act (PPPHEA) that provided two new pools of special COVID-19-related funding for EIDL – one of $10 billion and another of $50 billion. The PPHEA extended EIDL eligibility to agricultural businesses having fewer than 500 employees. It did not remove any types of businesses from eligibility – which leaves the May 2018 guidance as the last word on EIDL eligibility under Section 7(b).
- On May 4, 2020, the SBA announced from that date forward, it would take applications only from agricultural business for the PPPHEA-funded EIDLs and would limit all funding to a $150,000 maximum, regardless of the applicants’ request.
Team GRC believes Congress will consider more legislation to help small-businesses recover from the COVID-19 closings and loss of business. You can help us prepare arguments to clarify your eligibility generally for EIDLs by sending the following information to firstname.lastname@example.org: 1) the date you applied for the EIDL, 2) the status or disposition (grant or denial), 3) a copy of any letters or emails you received from the SBA about your application. This information will be kept confidential.
For your convenience, email@example.com comes directly to Fran Bishop, Government Relations Liaison.
This GRC Update is not intended and should not be construed as legal advice to NPA members.
Members should consult their own lawyers for legal advice.
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