How To Determine If Your EIDL Loan Is Forgivable
COVID stimulus programs have all closed, but does your business qualify for EIDL forgiveness? Learn about SBA EIDL loan forgiveness, repayment, and deferment options.
As small business owners transition into their repayment periods post-pandemic, there are questions about SBA loan forgiveness and deferments. Some loans and grants, including the EIDL grant and the Paycheck Protection Program loan, may be eligible for forgiveness. The EIDL loan, however, is like a traditional business loan and will need to be repaid.
Fortunately, the Small Business Administration (SBA) in March 0f 2022 announced an additional six-month deferral option, allowing small business owners to defer their loan payments for a total of 30 months. If you received an EIDL loan or grant, keep reading to learn more about how SBA’s EIDL loan forgiveness works.
Table of Contents
- Are The EIDL Loans & Grants Forgivable?
- EIDL Forgiveness Rules
- EIDL Loan Deferment
- How To Apply For SBA EIDL Loan Forgiveness
- EIDL Loan Repayment Terms
- What If I Can’t Repay My EIDL Loan?
- Other SBA Loan Forgiveness Rules
- EIDL Loan Forgiveness FAQs
Are The EIDL Loans & Grants Forgivable?
There are two parts to the EIDL program: loans and grants. The EIDL loan — which can be as high as $2 million — is generally not forgivable. You’ll need to repay an EIDL loan, but grants do not need to be forgiven or repaid.
Here’s a quick breakdown of which stimulus programs are forgivable.
|COVID-19 Relief Fund Type||Program Status||Forgivable?|
|PPP||Closed as of May 31, 2021||Yes — restrictions apply|
|EIDL Loan||Closed as of December 31, 2021||No|
|Targeted EIDL Advance||Closed as of December 31, 2021||Yes — automatically|
|Supplemental Targeted Advance||Closed as of December 31, 2021||Yes — automatically|
|SVOG||Closed as of August 20, 2021||Yes — automatically|
|RRF||Closed as of May 24, 2021||Yes — automatically|
Usually, when people think of a COVID stimulus program with a forgiveness process, they’re thinking of the Paycheck Protection Program (PPP). The PPP program is designed for staff retention; therefore, businesses must meet some prerequisites before their PPP loan is forgiven.
EIDL Forgiveness Rules
EIDL loans cannot be forgiven, but targeted EDIL Advances, Shuttered Venue Operators Grants, and certain other COVID-related grants can be forgiven. See if your business qualifies for EIDL forgiveness below.
Targeted EIDL Advance Forgiveness Rules
If you successfully qualified for a Targeted EIDL Advance and received the funds, forgiveness is automatic; there is no need to apply for forgiveness. As a grant, the Targeted EIDL Advance does not need to be repaid. Additionally, your Targeted EIDL Advance is not considered taxable income.
However, you must spend your grant on approved expenditures or risk violating the terms, in which case you could be asked to repay.
Grant money may be spent on:
- Working capital and operating expenses that could have been met had the disaster not occurred
- Health care benefits
- Fixed-debt payments
Supplemental Targeted Advance Forgiveness Rules
The Supplemental Targeted Advance provided especially hard-hit businesses in low-income areas an additional $5,000 in grant money. Like the regular Targeted Advance, it’s a grant and does not need to be repaid as long as the money is spent on qualified expenses. These are the same as for the Targeted EIDL Advance.
You do not need to apply for forgiveness.
Shuttered Venue Operators Grant Forgiveness Rules
The Shuttered Venue Operators Grant (SVOG) was a grant introduced in April 2021 to aid live venues, movie theaters, museums, and talent agents that suffered economic losses due to the pandemic and lockdowns. The program closed in August 2021.
As grants, SVOGs do not have to be repaid, nor do they have a forgiveness process. You will, however, need to abide by the terms of the grant to avoid being asked to pay it back. SVOG funds can be spent on:
- PPE, barriers, and other COVID-related protections
- Debt payments on debts incurred before February 15, 2020
- Payments to independent contractors up to $100K per contractor
- State and local taxes and fees
- Administrative costs
- Operating leases that were in effect as of February 15, 2020
- Necessary insurance payments
- Capital expenditures for shows so long as this isn’t the primary use of funds
Restaurant Revitalization Fund Forgiveness Rules
The Restaurant Revitalization Fund (RRF) was a grant introduced in 2021 to aid restaurants negatively affected by COVID-19 and the restrictions imposed to control its spread.
As a grant, the RRF does not need to be repaid, nor do recipients have to apply for forgiveness. As with the other grants we’ve covered, you will want to make sure you spend your funds on approved expenses to avoid being asked to pay back your grant.
Approved expenses include:
- Business mortgage obligations
- Business rent obligations (but not for the prepayment of rent)
- Business debt service (but not for the prepayment of principal or interest)
- Utility payments
- Maintenance expenses
- Construction of outdoor seating
- Supplies, including protective equipment and cleaning materials
- Food and beverage expenses, including raw materials
- Supplier costs
- Operating expenses
EIDL Loan Deferment
While EIDL loans cannot be forgiven, EIDL loans do have a deferment period. Any EIDL loan approved in 2020, 2021, and 2022 can be deferred up to 30 months from the date of the note. Full or partial payments can be made during this time but are not required. Interest will continue to accrue during the deferment.
How To Apply For SBA EIDL Loan Forgiveness
There is no need to apply for EIDL loan forgiveness. Remember, EIDL loans cannot be forgiven and EIDL grants are automatically forgiven, provided you use the funds on approved expenses.
EIDL Loan Repayment Terms
EIDL loans come with a 3.75% fixed interest rate for businesses and a 2.75% fixed interest rate for private nonprofits. The maximum term length for COVID EIDL loans is 30 years.
One of the main advantages of EIDL loans is their long deferment period, during which you don’t have to make any payments. As we touched on earlier, loans have a 30-month deferment window from the date of the note.
What If I Can’t Repay My EIDL Loan?
If you’re facing financial hardship and are unable to repay your EIDL loan, the first thing to do is communicate with the SBA. Avoiding phone calls and other communications isn’t going to make the problem go away and will only make things worse. Instead, contact the SBA by phone or email to find out about your options.
One option that may be available to you is the SBA’s Hardship Accommodation Plan. This plan is designed for businesses facing temporary financial hardship. Under this plan, borrowers will pay at least 10% of their monthly payment (with a minimum payment of $25) for six months. Borrowers can opt to pay more if they are able. At the end of the six-month period, borrowers will resume regular payments. A renewal of this plan may be available for some borrowers with continued financial hardships.
Borrowers with loans of $200,000 or less can use the Capital Access Financial System to apply. Borrowers with loans that exceed $200,000 can contact the COVID-19 EIDL Servicing Center for more information.
Borrowers can also contact the SBA to find out about free or low-cost financial counseling to help them get their finances back on track.
How Is My EIDL Affected If My Business Shut Down?
If your business closed its doors or you’re facing a long-term financial hardship, it’s important to communicate with the SBA. Again, there may be options for paying off your debt, and you won’t know these options if you don’t keep the lines of communication open.
Your EIDL loan is backed by business assets. If you’re truly unable to pay your loan, the SBA can take possession of your business assets — things like furniture, fixtures, computers, equipment, and vehicles.
If you signed a personal guarantee when receiving your EIDL, you are held personally liable for repaying the loan. This means that the SBA can seize personal assets in order to repay the loan. In some situations, borrowers may find that the best course of action is to file for bankruptcy. However, before you do anything, it’s important to communicate with the SBA to determine your options or speak to an attorney to learn what you can do if you can’t repay your EIDL loan.
Other SBA Loan Forgiveness Rules
The SBA offers other funding programs outside of EIDL, PPP, and other related loans and grants. The SBA 7(a) loan, SBA Microloans, and the CDC/504 loan are among the most popular programs. If you’ve received one of these loans, you may also be wondering if they’re forgivable.
Unfortunately, SBA loans are like any other type of loan and have to be repaid. Even if your business is struggling to stay afloat, or, worse, has had to close its doors, you’re still on the hook for repaying your SBA loan.
If you’re unable to afford your loan payments, failure to repay your loan could result in:
- Seizure of business assets
- Seizure of personal assets (based on the personal guarantee that was signed)
- Referral to the Treasury for wage garnishment and offset of tax refunds
- Negative impact on credit
Communicating with your lender and the SBA is key if you can’t afford your loan payments. You may be able to work out a repayment plan that works for you. If you’re truly unable to pay, you may be able to do what is known as an offer in compromise. This allows you to settle your debt by paying an agreed-upon amount that is less than the total balance due.
It’s important to note that an offer in compromise isn’t always accepted. You may also need to hire an attorney to navigate this complex process, which may cost thousands of dollars.
Regardless of the circumstances, it’s worth stressing again that communication is crucial if you’re struggling to repay your SBA loan debt.