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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?
No. All SBA loans need to be repaid, even those that were administered due to COVID-19 lockdowns.
The good news is that for people still paying their COVID-targeted small business loans, the SBA has a program for short-term financial assistance for those who qualify.
Key Points
• All SBA loans must be repaid in full, including those issued during COVID-19 lockdowns, with no general forgiveness programs available for standard loan balances.
• The popular 7(a) loan program offers up to $5 million at low interest rates for working capital, debt refinancing, and purchasing business equipment or supplies.
• Early COVID-19 EIDL recipients who qualified for Advance funds received up to $10,000 that did not require repayment, plus an additional $5,000 Supplemental Targeted Advance.
• Eligible COVID-EIDL borrowers experiencing temporary financial difficulty can apply to reduce payments by 50% for six months, with full payments resuming afterward.
• To qualify for payment reduction, the loan must be fewer than 90 days past due, the business must be actively operating, and the borrower cannot be in bankruptcy.
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.
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 eight weeks 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 eight weeks 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.
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Economic Injury Disaster Advance Grants
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.
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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.
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.
How the SBA Helps Loan Holders in Financial Difficulty
However, when it comes to existing SBA loans that are COVID-EIDL, SBA offers a program to help small businesses still paying their loans who have short-term financial difficulties.
SBA allows eligible COVID-EIDL borrowers to reduce their payments by 50% for six months. To apply, borrowers can request this help through the SBA Loan Portal. Eligible borrowers can take advantage of this program once every five years. After this period is complete, you are required to resume full payments.
Eligibility:
• Loan must be less than 90 days past due at the time of the request
• The loan must not have a Charged Off or Uncollectible status
• The business must be actively open and operating
• The borrower and all owners must not be subject to active bankruptcy proceedings
• Requesting due to a temporary financial difficulty or cash flow issue rather than a long-term challenge
The Takeaway
The EIDL COVID-19 loans, low-interest loans from the SBA offering help through the pandemic, were lifesavers for small businesses several years ago. Just as all small business loans must be repaid, those EIDL loans had to 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 operates for new loans, and it’s intended for businesses that have suffered the impact of natural disasters, not COVID.
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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”) was closed. The loans are in repayment. 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 six-month financial assistance program for people who are having difficulty paying off their COVID-EIDL loan.
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