How To Determine If Your EIDL Loan Is Forgivable
COVID stimulus programs have all closed. Now it's time for small business owners to think about repayment, forgiveness, and deferments for SBA loans and grants.
The SBA Economic Injury Disaster Loans (EIDL) and grants closed at the end of 2021. As small business owners transition into their repayment periods, there are questions about 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 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 the SBA’s EIDL loan forgiveness.
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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.
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 Loan Forgiveness
EIDL loans cannot be forgiven.
However, 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.
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
How To Apply For EIDL Forgiveness
There is no need to apply for EIDL forgiveness. Remember, EIDL loans cannot for forgiven. EIDL grants are automatically forgiven, provided you use the funds on approved expenses.
EIDL Loan Repayment Terms
Because you do have to repay EIDL loans, you may be wondering what repayment terms you might receive. 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.