In the wake of economic challenges — like the COVID-19 pandemic — many small business owners have turned to the Economic Injury Disaster Loan (EIDL) program for financial relief.
Many business owners who received an EIDL during the pandemic may wonder if they qualify for forgiveness. Read on to learn more about the terms of EIDL loan forgiveness and eligibility requirements.
How do SBA EIDL Loans Work?
The Economic Injury Disaster Loan (EIDL) program is a federal loan program administered by the U.S. Small Business Administration (SBA). It provides financial assistance to small businesses and other organizations that suffered substantial economic injury due to a declared disaster. Here’s how EIDL loans work:
Eligibility
EIDLs are available to small businesses, most private nonprofits, and agricultural businesses affected by a declared disaster. The loan is only available in areas where there has been an official disaster declaration by the federal government.
Loan Amounts and Terms
Businesses can borrow up to $2 million. The amount is based on the actual economic injury and the business’s financial needs.
The loan can be used for working capital and normal operating expenses. These can include health care benefits, rent, utilities, fixed debt payments, and other bills that would have been paid if the disaster hadn’t occurred.
However, EIDL funds can’t be used to refinance long-term debt, expand a business, or start a new business.
For loans over $25,000, the SBA requires collateral if available. The SBA won’t decline a loan for lack of collateral, but will require the borrower to pledge what is available.
During certain disasters, such as the COVID-19 pandemic, businesses could apply for an advance of up to $10,000. This did not have to be repaid.
Note that according to the SBA, the COVID-19 EIDL program is not accepting new applications, requests for increases, or reconsiderations. The SBA stopped accepting applications for new COVID-19 EIDL loans or advances on January 1, 2022. As of May 16, 2022, the COVID-19 EIDL portal is closed.
Understanding EIDL Loan Forgiveness
Unfortunately, there is no current program for complete EIDL loan forgiveness. However, the SBA may consider partial forgiveness or loan modification in extenuating circumstances. This typically applies to borrowers who can demonstrate financial hardship.
Generally, however, EIDLs are not forgivable. This means that businesses and non-profits that received an EIDL must repay the loan according to the terms agreed upon with the SBA. However, there are some related aspects to consider:
EIDL Advance
During the COVID-19 pandemic, the SBA offered an EIDL Advance (also called a grant) of up to $10,000. This advance did not have to be repaid and effectively functioned as a grant rather than a loan.
The EIDL Advance was available to businesses applying for an EIDL, and the amount was determined by the number of employees ($1,000 per employee, up to $10,000). The EIDL Advance was automatically forgiven and didn’t require an application or approval process.
Fortunately, the repayment terms for EIDLs are favorable. They included deferred payments for the first year (interest still accrued during this period), and come with low interest rates (3.75% for small businesses, 2.75% for non-profits).
Paycheck Protection Program (PPP)
Some confusion might arise from comparing EIDLs with the Paycheck Protection Program, another SBA initiative that allowed for loan forgiveness if funds were used for specific purposes (primarily payroll, rent, mortgage interest, and utilities). Unlike an EIDL, PPP loans were designed with forgiveness provisions.
Bottom line: If you received an EIDL loan, you should plan for repayment. If you received an EIDL Advance, you do not need to worry about repaying that portion.
Alternative options for EIDL Loan Forgiveness
If you’re facing difficulties repaying your EIDL, it’s important to explore all available options to manage your loan effectively. While EIDL loans are generally are not forgivable, except for the initial advance/grant portion under specific conditions, there are several strategies you can consider to restructure the loan or alleviate the burden of payments:
- Hardship Accommodation Plan (HAP): In February 2024, the SBA expanded eligibility for its Hardship Accommodation Plan to assist borrowers struggling with loan payments. This expansion includes borrowers who are behind on payments, in default but not yet in Treasury Cross-Servicing, and those who have previously participated in HAP. If you were previously denied HAP, consider reapplying under the new eligibility criteria. You don’t need to bring your loan current to enroll in HAP. However, if you miss HAP payments, your loan will re-enter default and proceed towards Treasury referral.
- Deferment: Due to the ongoing negative effects of the pandemic, the SBA granted a 30-month deferment from the original note date for COVID-19 EIDL borrowers. This deferment does not apply to non-COVID disaster home and business loans. It applies to all COVID-19 EIDL loans approved in 2020, 2021, and 2022, with interest continuing to accrue during the deferment. Note that the 30-month deferment will not be extended.
- Financial Counseling Resources: The SBA offers free or low-cost counseling through its national network of Resource Partners. These organizations can help review your business plan, identify capital access opportunities, and provide information on tax benefits. Contact your local District Office or search online for available resources in your area.
Conclusion: The Future of EIDL Loans
The EIDL program, particularly its forgivable advance, played a vital role in helping businesses navigate the economic fallout of the pandemic. While the main portion of EIDL loans is not forgivable, there are still options for managing loan obligations.
If you’re struggling with SBA EIDL payments and are concerned about going into default – or are currently in default and considering your options – it’s a good idea to consult with an experienced debt relief attorney who can recommend the best solution to pursue. Call our law firm for a free consultation at 866-890-7337 or fill out our short contact form, and we’ll get in touch. We never share or sell your information and all conversations are confidential.
