Small company owners have concerns regarding loan deferments and EIDL forgiveness as they enter their payback periods following the pandemic. Some loans and grants, such as the Paycheck Protection Program loan and the EIDL award, may be eligible for forgiveness. However, the EIDL loan must be returned like a conventional company loan.
Fortunately, the SBA announced an additional six-month deferral option in March 2022, giving small business owners 30 months to postpone loan payments.
What Loans Are Available?
There are two primary loan programs for a loan. The Small Business Administration offered the PPP to business owners in 2020 and 2021. Loans were made available to business owners through the Paycheck Protection Program (PPP) so that workers could continue their jobs if a company’s sales slowed or it had to close down completely. The program was completed on May 31, 2021. Economic Injury Disaster Lending (EIDL), the other loan scheme, has likewise been discontinued.
The EIDL initiative offered financial assistance to small firms that had lost money due to the coronavirus outbreak. You must adhere to specific guidelines when using your EIDL loan. The use of healthcare benefits, payroll, rent, utilities, and other business-related costs was permitted. EIDL loans had fixed interest rates of 3.75% for 30 years and were offered in quantities up to $2 million. For loans over $25,000, collateral is necessary. Let’s return to the issue of whether or not EIDL loans are forgiven.
How Does an EIDL Loan Work?
You can utilize the money from an EIDL to pay for operational costs and financial commitments like fixed debt payments, rent, and utilities, keeping your healthcare coverage going, wages, etc.
For loans over $25,000, there is a requirement for collateral. When available, the SBA accepts real estate as collateral; nevertheless, they won’t deny a loan for lack of collateral; you will still need to provide what you can. The loan term includes:
- The fixed interest rate for businesses
- The fixed interest rate for nonprofits
- No fees or prepayment penalties
- Up to 30 years of loan term length
- Payment deferment of up to one year
Will EIDL Loans be Forgiven?
An EIDL cannot be forgiven; as a result, the whole amount due must be paid. The SBA website states that this grant is no longer accessible. In 2020, the EIDL Program for COVID-19 did feature a cash advance of up to $1,000 or $10,000 per employee that did not need to be repaid.
But if you also apply for a PPP loan—which, when used properly, is forgiven—you might be able to use it to pay for some of your EIDL.
EIDL Loan Forgiveness Update 2023
As a business owner, you have two ways to get your EIDL debts forgiven. You can apply for half and full EIDL forgiveness with the Targeted EIDL Advance and the Supplemental Targeted Advanced. Let’s explore more about these loan policies:
Targeted EIDL Advance
Your business should follow these requirements for loan forgiveness:
- Have less than 300 employees
- Perform in a low-income community
- Used up to 30% revenue reduction in COVID-19
During COVID-19, businesses in low-income communities suffered more. The small businesses tried hard to perform during the harsh conditions of a pandemic. If you think that your business falls under the low-income community, then you can qualify for the forgiveness policy. However, you must prove a 30% reduction in revenue within eight weeks. Small businesses can avail of the EIDL forgiveness from March 2, 2020. To access the loan forgiveness, you must show your business’s gross monthly revenue, such as salaries and profits.
Supplemental Targeted Advance
Your business follows these requirements to qualify for EIDL forgiveness:
- Have less than 10 employees
- Perform in a low-income community
- Used up to 50% revenue reduction in COVID-19
You must provide gross monthly revenue for the last eight weeks and prove that you experienced a 50% or higher loss due to economic conditions. The SBA will evaluate the documents and reports to identify if you are eligible for forgiveness. If SBA finds your business eligible for EIDL forgiveness, they will send a confirmation email with instructions.
Tax Treatment
Having both a PPP loan or EIDL targeted advance won’t affect your tax liability and the amount of PPP forgiveness. The CAA instructs the SBA to make regulations addressing the situation if an EIDL grant previously decreased your PPP loan forgiveness amount.
Permitted Uses
If you utilize all of the funds from your Targeted EIDL Advance for the following purposes, you won’t have to pay them back:
- Increased material costs
- Lease, mortgage, or rent payments
- Paid sick leave
- Payroll management
- Other obligations
Non-Permitted Uses
You can’t use the EIDL Advance for:
- Refinancing loan-term debt
- Business expansion
- Replacing lost profits or sales
You may be required to pay back your advance immediately if you utilize all or a portion of it for prohibited purposes.
The SBA could penalize you with an immediate payback of 1.5 times the initial loan amount and potential criminal penalties because the EIDL loan is considered disaster money.
Loan Qualifications
Here are the requirements for loan eligibility:
- You must have a business with a maximum of 500 employees
- You have never been into an illegal activity
- Must not be a state, local, or municipal government body
- Must not draw more than one-third of gross yearly income from lawful gaming activities
- May not be a member of Congress.
- Shouldn’t be on child support obligations
You can find a complete list of requirements on this list.
EIDL Loan Forgiveness Application
In contrast to PPP, where you need a licensed lender, an EIDL application can be made directly through the SBA and is issued by the U.S. Treasury, making the procedure more simplified.
The online application process takes two to three hours to complete. Have personal financial documents, a schedule of liabilities, up to three years’ worth of tax returns, and an IRS Form 4506-T to save time. View the SBA’s comprehensive checklist here.
An EIDL’s approval is currently taking roughly 21 days because of COVID-19. The SBA states that money should be accessible five business days after being authorized, but several small company owners have observed longer wait times.
The COVID-19 EIDL application deadline has been postponed until December 31, 2021.
What is the Amount of EIDL Loan Forgiveness?
Can EIDL loans be forgiven? No, and yes. It’s crucial to realize that an EIDL loan and an EIDL Advance are two distinct concepts in this situation. You can be given a loan of up to $2 million if you apply for an EIDL loan. That loan has to be paid back. The SBA will examine your application separately to see if you are eligible for either one or both of the EIDL Advances. You could be requested more details to demonstrate your eligibility.
Although an EIDL loan isn’t forgivable, you can get EIDL forgiveness advanced with a cap. The combined forgiveness from the Supplemental Targeted EIDL Advance and the Targeted EIDL Advance cannot exceed $15,000. Up to $10,000 in forgiven monies are available through the Targeted EIDL Advance and up to $5,000 with the Supplemental Targeted Advance. You may get additional cash with an EIDL loan that cannot be forgiven, but the combined amount of the two cannot be greater than $15,000. Being aware of this is crucial since, in this scenario, your loan will have payments due and interest, and skipping one or more of these could jeopardize your credit.
Repayment Terms
You might be curious about your loan repayment terms because you have to repay EIDL loans. EIDL loans have set interest rates of 3.75% for corporations and 2.75% for private nonprofit organizations. Loans made through COVID EIDL have a 30-year maximum duration.
EIDL loans’ extensive deferment term, during which you do not need to make payments, is one of its key benefits. Loans have a 30-month deferment window starting from the date of the note, as we briefly mentioned before.
Conclusion
To reduce the amount of debt involved, all small firms should make an effort to pursue and fulfill any EIDL forgiveness and PPP loan opportunities. The cleanest and most straightforward way to avoid the pitfalls of loan default is through forgiveness.
Businesses with loans under $25,000 should be aware of potential effects on their reputation and federal assets in the case of default. Still, they may be confident that additional risk is modest. Before taking any steps to terminate their business and stop making payments on their EIDL debt forgiveness and PPP loan, borrowers of larger amounts should carefully analyze and comprehend their loan terms, especially regarding guarantees and collateral.
