Economic Injury Disaster Loan: To Repay Or Not?

Economic Injury Disaster Loans (EIDL) are low-interest federal loans issued by the Small Business Administration (SBA) to small businesses and private non-profits that are experiencing financial hardship due to a disaster, such as the Coronavirus (COVID-19) pandemic. While these loans are intended to provide economic relief, the question arises as to whether they need to be repaid. This paragraph will explore the topic of EIDL repayment, including any exceptions or deferment options available to borrowers.

Interest accrual and repayment options

EIDL loans do need to be repaid. However, there is a deferment period, with loans made in 2020 having a 24-month deferment window from the date of the note. Additionally, loans have an automatic deferment of one year before monthly payments begin. The SBA also offers loans with long-term repayments of up to 30 years to keep payments affordable. Terms are determined on a case-by-case basis, based on each borrower's ability to repay.

For the first year of the loan, there are two options. One option is to make 12 payments of $0.00 and then start repaying the loan, solving for an unknown payment amount beginning with the 13th payment. The other option is to make the first payment one year later and solve for that series of payments over the remaining term. In both cases, interest will accrue over the first 12 months, and the first payment will go towards interest. After the interest is paid, payments will be allocated to principal and interest.

Loan forgiveness

Economic Injury Disaster Loans (EIDL) are low-interest federal loans issued by the SBA to provide economic relief to small businesses and private non-profits that are experiencing a temporary loss of revenue due to disasters such as the COVID-19 pandemic, wildfires in California, or hurricanes. These loans are typically used to cover working capital and normal operating expenses, such as payroll, rent, utilities, and fixed debt payments.

While EIDLs offer a vital financial lifeline to businesses in need, it is important to note that these loans generally must be repaid. The SBA offers flexible repayment terms of up to 30 years, with interest rates of 3.75% for small businesses and 2.75% for non-profits. Repayment of the loan principal can be deferred for up to four months, and in some cases, there are no payments required during the first year.

However, it is essential to understand that the standard EIDL loans are not forgivable. This means that borrowers are responsible for repaying the full amount borrowed, plus interest, over the agreed-upon loan term. Failure to repay the loan as per the agreed-upon terms can have serious consequences, including default and potential legal or financial repercussions.

In contrast to the standard EIDL loans, the EIDL Advance program functioned more like a grant. The EIDL Advance funds, which were available until exhausted, did not need to be repaid. This program was designed to provide additional support to small businesses impacted by the COVID-19 disaster, showcasing the federal government's commitment to aiding businesses in their recovery from economic injuries caused by unforeseen events.

While loan forgiveness for standard EIDLs is not an option, the SBA does offer some flexibility in repayment terms. Businesses struggling to make payments due to ongoing financial challenges are encouraged to communicate their situation to the SBA. In certain exceptional cases, the SBA may work with borrowers to adjust the loan terms or explore alternative solutions to help them meet their obligations without incurring further financial strain.

Loan deferment

Economic Injury Disaster Loans (EIDL) are low-interest federal loans issued by the Small Business Administration (SBA) to provide economic relief to small businesses and private non-profit organisations that are experiencing a temporary loss of revenue. The interest rate is 3.75% for small businesses and 2.75% for non-profits.

In March 2021, the SBA announced extended deferment periods for all disaster loans, including the COVID-19 EIDL program, until 2022. All SBA disaster loans made in 2020, including COVID-19 EIDLs, had a first payment due date extended from 12 to 24 months from the date of the note. Loans made in 2021 had a first payment due date extended from 12 to 18 months from the date of the note. Existing SBA disaster loans approved before 2020 and in regular servicing status as of March 1, 2020, received an automatic deferment of principal and interest payments through December 31, 2020, which was then extended through March 31, 2021. An additional 12-month deferment of principal and interest payments was then automatically granted to these borrowers.

In December 2022, the SBA announced that disaster loans approved in response to a disaster declared on or after September 21, 2022, through September 30, 2023, would have an extended deferment period to 12 months. This is automatic, and borrowers do not need to take any additional action. There is no prepayment penalty, and borrowers can begin making loan payments during the deferment period if they choose. Interest on the loan will not begin to accrue until 12 months from the date of the initial loan disbursement.

The SBA offers loans with long-term repayments to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based on each borrower's ability to repay.

Loan eligibility

The Economic Injury Disaster Loan (EIDL) is a low-interest federal loan issued by the Small Business Administration (SBA) to small businesses, small agricultural cooperatives, and most private nonprofit organizations. The EIDL provides economic relief to small businesses and nonprofit organizations that have experienced a temporary loss of revenue due to disasters such as the COVID-19 pandemic, wildfires in California, or hurricanes. The loan amount can be up to $2 million, with interest rates of 3.75% for small businesses and 2.75% for nonprofits.

To be eligible for an EIDL, businesses must meet specific criteria:

• Direct Impact: The business must have been directly impacted by the disaster, resulting in a temporary loss of revenue.
• Inability to Cover Expenses: The business must demonstrate an inability to cover expenses, including debt payments, due to the disaster.
• Physical Location: The business must have been physically located in the declared disaster area.
• Size Standards: The SBA has defined size standards based on the NAICS industry classification code, considering the number of employees or the amount of annual receipts. Applicants can use the SBA's size standards tool to determine their eligibility.
• Substantial Economic Injury: The business must show a substantial economic injury, which means being unable to meet financial obligations and pay regular and necessary operating expenses. A loss of expected profits or a decline in sales does not constitute substantial economic injury.
• Agricultural Businesses: As of June 2020, the SBA specified that EID Loans are only available for eligible agricultural businesses.

The EIDL funds can be used to cover accounts payable, debts, payroll, and other bills that the business may be struggling to pay. However, it is important to note that the funds cannot be used to refinance long-term debts. The loan repayment is deferred for the first four months, and the SBA offers long-term repayment plans of up to 30 years to keep payments affordable. The terms of the loan are determined on a case-by-case basis, considering the borrower's ability to repay.

Loan application process

The Economic Injury Disaster Loan (EIDL) is a low-interest federal loan issued by the Small Business Administration (SBA) to small businesses and private non-profits experiencing economic injury due to the Coronavirus (COVID-19). The loan is meant to address working capital and normal expense needs and not to replace lost profits or refinance long-term debt.

The SBA recommends using the online loan application, which can be found at https://disasterloan.sba.gov/ela/. The SBA is also hosting webinars daily to help small businesses navigate the program. Businesses can also call 312-353-4528 for assistance.

Before starting an application, confirm that your business qualifies per SBA's table of small business size standards, which is usually stated in the number of employees or average annual receipts. The definition of "small" varies by industry.

The following information is required as part of the application:

• Monthly sales figures for the three years prior to the disaster and continuing through the most recent month available. These figures need to reconcile with tax returns for the corresponding years.
• Tax transcripts and completed IRS Form 4506-T for each business partner.
• Personal financial information for owners, general partners, managing members, or each owner of 20% or more of the equity.
• A six-month financial projection or revenue document.
• Additional narrative or financial information to help establish the economic loss.

If an "Agent" receives compensation from the applicant for activities directly connected to the application process, and the compensation exceeds $2,500, the Agent must provide a separate schedule itemizing:

• Services performed
• The hourly rate and number of hours billed for each service

It is important to ensure that all the required information is submitted. Incomplete applications will not be accepted and may delay critical funding.

Frequently asked questions