Do You Have to Pay Back SBA Loans?

By Susan Guillory · May 22, 2024 · 6 minute read

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Do You Have to Pay Back SBA Loans?

You may have heard a rumor that there are business loans from the Small Business Administration (SBA) that you don’t have to pay back. Could that possibly be true?

The short answer: All SBA loans need to be repaid. If you are wondering if there is forgiveness for Covid-19 related small business loans, the answer is no.

However, it’s important to know that there is a special hardship plan for those who took out SBA loans because of Covid-19 and are having trouble repaying the money.

What Is an SBA Loan?

The SBA backs several types of loans:

7(a) Loans

The 7(a) loans for small businesses are among the most popular options, as they offer up to $5 million at low interest rates and can be used for working capital, to refinance business debt, or to buy furniture, fixtures, or supplies.

CDC/504 Loans

SBA’s 504 Loans also have a cap of $5 million. They can be used to purchase buildings or land, build new facilities, or buy equipment.

Microloans

There are microloans for businesses that need a smaller amount of capital. These loans provide up to $50,000 to help businesses start up or expand operations.

Paying Back the SBA Loans

SBA loans, which are provided through banks and other approved lenders, are popular because they often offer lower interest rates than traditional banks and may have less stringent qualifications than some bank loans.

Returning to the question of whether you have to pay back SBA loans: For the ones we’ve discussed so far, yes, you do. But there’s one other kind of SBA loan we haven’t talked about yet. The Economic Injury Disaster Loan.

What Is an Economic Injury Disaster Loan?

The Economic Injury Disaster Loan (EIDL) is offered to a business in a disaster area that has been negatively impacted. A disaster could be a major storm, flooding, or drought.

This loan was made available to businesses that weren’t able to pay their ordinary and necessary business expenses because of the qualifying disaster, and the funds provide working capital to help them resume business as usual. To qualify, businesses must not have been able to get financing elsewhere.

In 2020, the disaster program was made available for those whose businesses suffered from the
pandemic. Over 4 million businesses were approved for nearly $390 billion in COVID Economic Injury Disaster Loans.

The Targeted EIDL Advance provided funds of up to $10,000 to applicants who were in a low-income community, could demonstrate more than 30% reduction in revenue during an eight-week period beginning on March 2, 2020, or later, and had 300 or fewer employees.

The Supplemental Targeted Advance provided a supplemental payment of $5,000 that did not have to be repaid. The combined amount of the Supplemental Targeted Advance ($5,000) with any previously received EIDL Advance or Targeted EIDL Advance ($10,000) could not exceed $15,000.

Applicants had to be located in a low-income community, prove more than a 50% economic loss during an eight-week period beginning on March 2, 2020, or later, and had 10 or fewer employees.

As of January 1, 2022, the SBA stopped accepting applications for new COVID-19 EIDL loans or advances.

Recommended: Startup Business Loans Bad Credit

Economic Injury Disaster Advance Grants

We’re now ready to answer your question: Do you have to pay back all SBA disaster loans?

Early recipients of the EIDL loans were eligible for EIDL Advance funds, which didn’t have to be repaid. There was a cap of $1,000 per employee for eligible applicants, up to $10,000. A total of $20 billion was given in these Advance grants.

Recipients did not have to be approved for an EIDL loan to receive the Advance grant. Those that were receiving a loan had the amount of the Advance deducted from their total loan eligibility.

To summarize: If you received an Economic Injury Disaster Loan, you are required to pay it back in full. However, if you received your loan during the period when either of the Advance funds were offered and you were approved for an Advance, that portion did not have to be repaid. Those Advance grants were distributed several years ago.

Recommended: What Does a Personal Guarantee Mean?

Hardship Plan for Covid-19 Loans

Some businesses are still struggling to repay their COVID-19 loans from the SBA. While they hoped their businesses would be back on a sure footing, inflation or other issues have caused revenue shortfalls.

In February 2024, the SBA expanded the eligibility for its Hardship Accommodation Plan (HAP) for borrowers who were struggling with loan payments. This includes borrowers who are not current on the loan, are already in default but are not in Treasury Cross-Servicing, and those that have previously participated in HAP.

•  If you previously applied to HAP and were turned down, you should take advantage of the plan’s recent expansions and try again.

•  You do not have to bring the loan current to enroll in HAP.

•  If you do not make HAP payments, your loan will re-enter default and resume the path to Treasury referral.

•  To discuss your HAP eligibility, contact SBA’s COVID-19 EIDL Assistance by phone or email.

EIDL Loan Terms

The COVID-19 loans might not be available any longer, but the EIDL program is worth considering if your business qualifies due to a natural disaster.

Businesses of all sizes located in declared disaster areas can get help. Also, private nonprofit organizations, homeowners, and renters are affected by declared disasters, including civil unrest and natural disasters such as hurricanes, flooding, and wildfires.

Recommended: What Does a Personal Guarantee Mean?

Eligibility

•  Substantial economic injury means the business is unable to meet its obligations and pay its ordinary and necessary operating expenses.

•  EIDL provides the necessary working capital to help small businesses impacted by a disaster survive until normal operations resume.

•  EIDL assistance is available only to small businesses when SBA determines they are unable to obtain credit elsewhere.

The Takeaway

The EIDL Covid-19 loans, low-interest loans from the SBA offering help through the pandemic, were life savers for small businesses. Just as all small business loans must be repaid, those EIDL loans must be repaid too, except for some of the Advance grants distributed early on in the pandemic. The EIDL program is still in existence, but it’s intended for businesses that have suffered the impact of natural disasters, not Covid.

If you are having a difficult time repaying your Covid-19 loan from the SBA, a Hardship Program is still open for applications.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.


Get personalized small business financing quotes with SoFi's marketplace.

FAQ

What can I use EIDL funds for?

Working capital to make regular payments for operating expenses, including payroll, rent/mortgage, utilities, and other ordinary business expenses, and to pay business debt incurred at any time.

Can I still get an EIDL loan because of COVID-19?

No, you can’t. The COVID-19 EIDL program is not accepting new applications, increasing requests, or reconsidering applications. As of May 16, 2022, the COVID-19 EIDL portal (also known as the “RAPID portal”) is closed. Borrowers who need copies of their loan documents can contact SBA at 833-853-5638.

Is there forgiveness for EIDL loans if you can’t pay?

No. But the SBA is offering a Hardship Accommodation Plan for borrowers experiencing short-term financial challenges. Borrowers eligible for this plan may make reduced payments for six months. Interest will continue to accrue, which may increase (or create) a balloon payment due at the end of the loan term.


Photo credit: iStock/whitebalance.oatt

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