Is EIDL Forgivable? Everything You Need to Know

The federal government stepped up to the plate and provided various financial tools for small businesses to help them survive the economic hardships due to the COVID-19 pandemic. Among the most useful programs is the EIDL or Economic Injury Disaster Loan. While many businesses applied for this loan in the initial months of the pandemic, many more also found that the pandemic lasted for longer than most anticipated. This has led many business owners to default on their payments or worry that they won’t be able to pay back the loan in its entirety. So, can the EIDL be forgiven? Are there any other details you need to know about the EIDL before you apply for this assistance yourself? We’ll break down the answers to both of these questions and more below. 

What is EIDL? 

The COVID-19 EIDL or Economic Injury Disaster Loan is a Small Business Association (SBA) initiative designed to assist businesses that the COVID-19 pandemic has negatively impacted. Because it is a specialized initiative, not every business can apply for an EIDL. The purpose of the loan is to help businesses and smaller organizations meet their financial obligations, plus pay for continuing operating expenses. In other words, the EIDL can help you stay afloat while the economic repercussions from the coronavirus pandemic slowly simmer down.

Just How Much Money Could You See?

 If you haven't yet applied for the loan, your business may qualify for a 24-month economic injury payment , totaling a maximum loan value of up to $500,000. This money will be distributed monthly for the duration of your loan, depending on what is approved by the SBA and your unique economic requirements. Businesses that applied prior to April 6, 2021, can now qualify for various loan increases. If those business owners received loans for less than $500,000 initially, they are often eligible for increases based on newly announced maximum loan amounts. Regardless, the application deadline for the EIDL is December 31, 2021. If you are accepted for a loan for less than the full original amount offered, you’ll have up to two years after the loan promissory note’s date to request extra funds. You can even keep requesting funds after the application mentioned above deadline. Bottom line: if you’re a small business owner whose organization has been hurt by COVID-19 or related factors, you can and should apply for this loan ASAP. You may be better able to manage your ongoing costs with federal aid, even if you have to repay the loan eventually.

Who Is Qualified for EIDLs?

While the EIDL can be a very helpful tool for a wide range of organizations, it is only intended to help specific businesses . These include small businesses, small agricultural cooperatives, and the majority of private nonprofit organizations. Larger businesses are almost always automatically disqualified for the EIDL. Furthermore, your business must qualify based on several eligibility criteria before you can receive your loan payments. These include:

• Your business must have received “substantial economic injury”, which means your business can’t meet its obligations and/or pay your “ordinary and necessary” operating expenses. Naturally, your loan application will need to include proof of these circumstances.
• Your business must be unable to obtain credit elsewhere. The SBA will determine whether this is true by looking at your records and inquiring about other credit sources.

Should you be approved for the loan, the EIDL will provide some necessary cash to help you survive until your operations can get back up to speed and regular profitability levels.  In total, the SBA can provide up to $2 million to help meet any operating expenses or financial obligations, provided that those costs would have been manageable if the disaster hadn’t occurred. For example, if you had to lay off your workforce because of the pandemic, the SBA can help cover the cost of rehiring those individuals. But if you decided to expand your business during COVID-19, the SBA will not qualify that as a necessary expense and will be less likely to approve your loan application. In total, the maximum combined loan amount you can get is $2 million. Furthermore, note that the EIDL is not intended to cover property damage.  For that, the SBA's Business Physical Disaster Loans are an alternative option to gain the capital necessary to repair your business's premises and property.

Specifics of Economic Injury Disaster Loans

The EIDL is fairly straightforward when it comes to what it specifically offers and the details of the loan term. These include:

• A maximum loan amount of $2 million with loan increases or $500,000 initially
• Fixed interest rates of 3.75% for businesses and 2.75% for nonprofit organizations
• Loan terms are fixed and up to 30 years, though the term for your loan depends significantly on the amount you receive
• There are no prepayment penalties or other fees, so these are fairly straightforward 

However, your business must also meet some collateral requirements in order to qualify for loans over $25,000 in value. Once you receive your money, you must use it for normal operating expenses and working capital. These include:

• Continuing health care benefits for your employees
• Rent and utility costs
• Fixed debt payments related to your business and its operation
• And more

Is the EIDL Forgivable? 

Unfortunately, the EIDL is not forgivable under any circumstances. This means that the government will not stop requesting payments for the EIDL even if your business suffers future hardship. The only way that the loan will be removed is if you declare bankruptcy and are physically unable to pay for the remaining balance in any way. However, the loan’s term of up to 30 years does mean that there’s lots of time for small businesses to recoup their profits lost during the pandemic and make gradual payments toward the loan’s balance. You do not have to pay back the loan very rapidly, which is beneficial because many recovering businesses may need several years before they are in a financial situation flexible enough to start making bigger payments.

What About the Targeted EIDL Advance?

Aside from the primary loan amount, the EIDL also offers an Advance payment application . At the time of this writing, the government’s allocated funds for the Advance aspect of the program have been totally used up. But the government may allocate additional funds to the Advance EIDL program in the future. If this occurs, you can apply for the EIDL and receive up to $50,000 in funding that doesn't need to be repaid. In this way, an EIDL actually gives you cash like a grant instead of a typical loan balance. In order to receive this advance, you have to apply for the regular COVID-19 Economic Injury Disaster Loan. Fortunately, you don’t have to accept the loan or even be approved in order to receive the advance.  The SBA will determine which businesses qualify for the advance based on various criteria, including their economic need, size, and whether they have received loan payments before already.

Who Qualifies For the Targeted EIDL Advance?

The Advance is only available to some applicants. The typical businesses approved include:

• Businesses that are in low-income communities. Whether your business’s income is “low-income” is classified by the Internal Revenue Code
• Businesses that demonstrate that they have seen more than a 30% reduction in their revenue during an eight-week period that began on March 2, 2020, or after. Businesses may also be asked to provide their gross monthly revenue to confirm that the 30% reduction took place
• Businesses that have 300 or fewer employees

However, all businesses that are eligible for the broader EIDL program can still apply for the Advance, including sole proprietorships, private and nonprofit organizations, and more. Note that agricultural enterprises are not eligible for the Advance.

Summary

The EIDL is a viable economic relief option for small business owners struggling to stay afloat as the market ramps back up to regular activity levels. But should you decide to take out this loan, keep in mind that you will eventually need to pay it back fully, along with the interest rate applied to your loan contract? The federal government will not forgive this loan because it eventually needs to pay back its own debts to cover the costs of the COVID-19 pandemic. If you’re worried about not being able to pay the loan back, consider alternative loans or grant sources. Not sure where to look? Seek Capital may be able to help. Our extensive resources and business loans could be the perfect tools needed to get your enterprise back on track. Contact us today for more information. Sources: COVID-19 EIDL Loan Application | SBA.gov Economic Injury Disaster Loans | Benefits.gov Targeted EIDL Advance and Supplemental Targeted Advance | SBA.gov