What Happened To Eidl Loan If Business Closes

Due to a lack of funding, the COVID-19 EIDL portal for the SBA closed on May 16, 2022, and is no longer accepting applications, requests for increases, reconsideration requests, and appeals.

End of 2021 marked the end of SBA’s Economic Injury Disaster Loans (EIDL) and grants. Small business owners have inquiries about loan forgiveness and deferments as they enter their repayment periods. Some loans and grants, such as the Paycheck Protection Program loan and the EIDL grant, may be eligible for forgiveness. However, the EIDL loan is similar to a conventional business loan and must be repaid.

Thankfully, the Small Business Administration (SBA) announced a second six-month deferral option in March, enabling small business owners to delay loan payments for a total of 30 months. Read on to discover more about the SBA’s EIDL loan forgiveness if you received an EIDL loan or grant.

If your business closes next week, you’re personally liable for the debt. Here’s another very important facet of the EIDL loan. These loans are not intended to be forgivable. In other words, they are not designed to be completely forgiven, but the expectation is you will pay a small amount every month for 30 years.

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

Typically, people think of the Paycheck Protection Program (PPP) when they consider a COVID stimulus program with a forgiveness process. Businesses must fulfill a number of requirements before their PPP loan is forgiven because the PPP program is intended to promote employee retention.

EIDL loans cannot be forgiven.

However, EIDL loans do have a deferment period. The maturity date of any EIDL loan approved in 2020, 2021, or 2022 may be postponed for up to 30 months. While not required, full or partial payments can be made now. Interest will continue to accrue during the deferment.

Targeted EIDL Advance Forgiveness Rules

Forgiveness is automatic if you were approved for a Targeted EIDL Advance and received the funds; you don’t have to submit an application. The Targeted EIDL Advance is a grant and is not repaid. Additionally, your Targeted EIDL Advance is not considered taxable income.

However, in order to avoid violating the conditions and possibly being asked to repay, you must use your grant for authorized expenses.

Grant money may be spent on:

  • Working capital and operating expenses that could have been met had the disaster not occurred
  • Health care benefits
  • Rent
  • Utilities
  • Fixed-debt payments
  • Supplemental Targeted Advance Forgiveness Rules

    Businesses in low-income areas that were particularly hard-hit received an additional $5,000 in grants through the Supplemental Targeted Advance. It is a grant and, like the standard Targeted Advance, is not repaid as long as the funds are used for approved 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

    A grant program called the Shuttered Venue Operators Grant (SVOG) was launched in April 2021 to assist live entertainment venues, theaters, museums, and talent agencies that experienced financial losses as a result of the pandemic and lockdowns. The program closed in August 2021.

    SVOGs are grants, not loans, and there is no procedure for forgiving them. However, in order to avoid having to repay the grant, you must abide by its conditions. SVOG funds can be spent on:

  • Payroll
  • Rent
  • Utilities
  • 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
  • Maintenance
  • 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

    A grant known as the Restaurant Revitalization Fund (RRF) was created in 2021 to assist restaurants harmed by COVID-19 and the limitations put in place to stop its spread.

    The RRF is a grant, not a loan, and recipients are not required to submit an application for forgiveness. As with the other grants we’ve discussed, you must spend your grant money on authorized expenses to avoid having to repay it.

    Approved expenses include:

  • Payroll
  • 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 SBA EIDL Loan Forgiveness

    There is no need to apply for EIDL loan forgiveness. Remember, EIDL loans cannot be forgiven. Grants from EIDL are automatically forgiven if you use the money for authorized expenses.

    EIDL Loan Repayment Terms

    You may be curious about the terms of your potential repayment because you do have to pay back EIDL loans. EIDL loans come with a 3. 75% fixed interest rate for businesses and a 2. 75% fixed interest rate for private nonprofits. Loans made through COVID EIDL have a 30-year maximum term.

    EIDL loans’ lengthy deferment period, during which you are not required to make payments, is one of their main benefits. Loans have a 30-month deferment window starting from the date of the note, as we briefly mentioned earlier.

    EIDL Loan Forgiveness FAQs

    The SBA provided grants and EIDL loans to qualified small businesses. While grants are not required to be repaid as long as they are used for eligible expenses, loans must be repaid over time.

    Are EIDL loans still available?

    As of December 31, 2021, COVID EIDL loans are no longer available.

    How much of an EIDL loan is forgivable?

    No portion of an EIDL loan is forgivable. EIDL grants, however, do not need to be repaid.

    Do I have to pay taxes on the Targeted EIDL Advance?

    The Targeted EIDL Advance does not result in taxable income.


    What happens if I can’t pay back my EIDL loan?

    The lender will first ask the company for payment of the remaining loan balance. However, the lender will foreclose on the business’s pledged collateral if the borrower is unable to make the full payment. Your business assets may not have much value. In that case, the lender will abandon the collateral.

    Can EIDL loans be forgiven?

    There is no need to apply for EIDL loan forgiveness. Remember, EIDL loans cannot be forgiven. Grants from EIDL are automatically forgiven if you use the money for authorized expenses.

    Do you have to pay back SBA loan if business fails?

    Small businesses are required to repay loans from SBA partner lenders that they receive. Depending on the loan amount, the SBA provides guarantees up to 85%, which the lender may request payment for in the event of a defaulted loan.

    Can an SBA EIDL loan be discharged?

    With a few exceptions, the short answer is “yes,” SBA EIDL loans can be discharged in bankruptcy. SBA loans receive the same bankruptcy treatment as other debts. Therefore, they qualify for discharge under the same conditions as a credit card or medical debt.