App version: 0.1.0

7 Ways to Manage Your Covid-19 EIDL Loan Difficulties

7 Ways To Manage Covid-19 EIDL Loan Without Default
Sulaiman Abdur-Rahman
Sulaiman Abdur-RahmanUpdated June 9, 2023
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Some of the 3.9 million Economic Injury Disaster Loan (EIDL) borrowers who received funding during the Covid-19 pandemic are now struggling to repay their debt. This is according to a new report by the Congressional Research Service (CRS), which cites anecdotal evidence and survey data.The U.S. Small Business Administration (SBA) requires EIDL loan borrowers to repay their debt when due, and the SBA typically writes off defaulted loans as a charge off if borrowers fail to make required payments. Borrowers in this situation may remain responsible for the debt and could face further collection efforts from the U.S. Department of the Treasury.Defaulting on a Covid EIDL loan can severely impact your credit score. SBA may also hold you personally liable if your business defaults on the loan. If you’re struggling to repay your Covid EIDL obligations, you may explore small business grants, crowdfunding platforms, and free or low-cost financial counseling resources to help your business survive.Below we highlight seven ways to manage your Covid-related EIDL debt when loan payments become hard to make.

When Are Covid-related EIDL Payments Due?

Covid-related EIDL payments are due 30 months from the date of the original note. The SBA began accepting Covid-related EIDL applications shortly after the pandemic began in 2020 up until it closed the application portal in May 2022. This means that the earliest Covid EIDL borrowers had to start making loan repayments in late October 2022 and that the latest borrowers will have to begin repayments in 2024.It can be difficult for some borrowers to pay back EIDL loan debt. EIDL loan borrowers have reportedly struggled to repay their Covid-related debts since the fourth quarter of 2022.Although borrowers are required to repay EIDL loan obligations, members of Congress have taken notice on the payment struggles some borrowers are facing. Democratic U.S. Rep. Marilyn Strickland of Washington introduced legislation in the House of Representatives on April 19, 2023, that would temporarily reduce the federal Covid-19 EIDL interest rate to 0% and sharply reduce a borrower’s monthly payment for 12 months. Strickland’s EIDL Relief Act bill now sits before the House Committee on Small Business for possible consideration.

Will Covid EIDL Payments Be Deferred Again?

The 30-month Covid-19 EIDL deferment period will not be extended, according to a note on the SBA’s website. The SBA also suggests that Covid EIDL debt is not forgivable.Congress may have the final say on whether Covid EIDL borrowers receive additional relief. Members of Congress may consider EIDL loan deferments or outright EIDL loan forgiveness as possible policy options, according to a CRS report dated April 18, 2023.As mentioned above, Congresswoman Strickland introduced a bill on April 19, 2023, that would temporarily reduce the federal Covid-19 EIDL interest rate to 0% and sharply reduce a borrower’s monthly payment for 12 months. Neither her bill nor any additional small business relief from Congress is guaranteed to pass, so Covid EIDL borrowers may want to consider the seven tips provided below.

7 Ways To Manage EIDL Loan Repayments if You Can’t Make Them

Below we highlight seven ways to manage your EIDL loan repayments if you’re facing a possible EIDL loan default:

1. Reduce Your Monthly Payment for 6 Months

You can lower your monthly Covid EIDL loan payment for at least six months by enrolling into the SBA’s temporary Hardship Accommodation Plan. Your monthly payment under the plan may be as low as $25 for six months. Borrowers may have the option to renew the Hardship Accommodation Plan for another six months after the initial term ends.The plan sharply reduces your Covid EIDL monthly payment for six months. You agree to pay at least 10% of your regular monthly payment amount (or a minimum of $25 per month for some borrowers) under the temporary six-month plan. EIDL loan interest will continue to accrue during the six-month relief period.

2. Repair Your Balance Sheet

A business that struggles to repay its EIDL loan or SBA disaster loan debt may have negative equity on its balance sheet. Negative equity is when the value of your liabilities exceeds the value of your assets.A business with negative equity can repair its balance sheet by managing its cash flow. Getting monthly revenue to exceed your operating expenses may require key adjustments, such as cutting some day-to-day expenses to help your business pay down debt.

3. Look Into Small Business Grants

Business owners who need financial assistance may explore small business grants as a possible source of revenue. A grant is a type of financial assistance that typically doesn’t need to be repaid. Government agencies, nonprofit organizations, and private companies may offer small business grants. Consider the National Association for the Self-Employed (NASE), a nonprofit that offers up to $4,000 in small business grants. NASE Growth Grants® cannot be used to pay debt, but recipients can use the free money to pay for advertising and hiring employees.Getting a grant that covers marketing, advertising, and hiring expenses means you can spend less of your earnings on those important initiatives. Using grant money to supplement your marketing budget can save you money on advertising, and the money you save on advertising can go toward repaying your Covid EIDL loan obligations.

4. Look Into Crowdfunding Platforms

Raising money through crowdfunding platforms can help you meet financial challenges, including the challenge of repaying your Covid EIDL loan debt in times of hardship. Just about anyone — family, friends, neighbors, and angel investors — can contribute to a crowdfunding campaign. Crowdfunding platforms can give you the opportunity to raise money online for a specific cause. This includes donation crowdfunding for a small business that needs help repaying an EIDL loan.Recommended: Guide to Donation-Based Crowdfunding

5. Look Into Venture Capital for Startups

If you’re a startup and facing difficulties repaying an EIDL loan, you may consider raising money through venture capital. What is venture capital? It’s equity financing that investors may provide to startups and up-and-coming small businesses. Venture capital or VC funding typically comes with strings attached. If you agree to the terms and conditions of VC funding, venture capitalists may acquire an ownership stake in your business. The arrangement provides your business with funding that doesn’t need to be repaid.How do you find venture capital for a startup? You can research your VC options and ask for referrals. Venture capitalists may demand an ownership stake and decision-making authority in exchange for funding your startup, so that’s something to keep in mind when looking for potential investors.

6. Take Advantage of Financial Counseling Resources

Getting advice from mentors or counselors can be helpful if you find yourself unable to repay your Covid EIDL loan. The SBA has a national network of outside partners that may be able to provide your business with the following free or low-cost counseling services:
  • Small Business Development Centers (SBDCs) that can provide entrepreneurial training and counseling
  • Entrepreneurial advice from mentors at SCORE, a nonprofit that offers educational workshops to small business owners
  • Veterans Business Outreach Center (VBOC) program resources that can help former U.S. military service members grow a small business, including disabled veterans
  • Women’s Business Centers (WBCs) that can provide counseling to women-owned businesses

7. Look Into the Consequences of Insolvency

Having difficulty repaying your Covid EIDL loans means your business is experiencing financial distress or insolvency. As you strive to bounce back from insolvency, it can be helpful to understand the gravity of your situation.Here are some of the potential consequences of insolvency:
  • If you signed an EIDL personal guarantee, your obligations to repay the loan may remain with you even if your business fails

What happens if you default on EIDL loan obligations?

You may be personally responsible for paying the debt following an EIDL loan default. There’s no guarantee that you’ll overcome your insolvency problems, but managing your debt as described in the seven tips above may help.Businesses that overcome financial difficulties may consider growing and expanding with small business loans.

The Takeaway

If you’re struggling to repay your Covid-19 EIDL loan debt, repairing your balance sheet and securing venture capital may help you manage the burden. Overcoming debt challenges with strong management and donation crowdfunding can stabilize your business. If your business is solvent and ready for growth, Lantern by SoFi can help. Just fill out a simple form and find the right financing for your business.Fast funding for your business: Loans up to $2 million.

Frequently Asked Questions

What happens if you default on EIDL loan debt?
Are EIDL loans forgivable?
Can borrowers still apply for EIDL loans?
Photo credit: iStock/FabrikaCr

About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and served as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
Share this article: