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Do You Have to Pay Back an EIDL Loan?

Do You Have to Pay Back an EIDL Loan?
Lauren Ward

Lauren Ward

Updated November 1, 2021
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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.
The Economic Injury Disaster Loan (EIDL) program offered by the Small Business Administration (SBA) has two components: a traditional loan meant to help businesses cover operating expenses in the midst of a declared disaster and a COVID-19 EIDL intended to help businesses that have been negatively impacted by the pandemic. Do you have to pay back an EIDL loan? Yes, the short answer is that both regular and COVID-19 EIDL loans do need to be repaid. However, the SBA has offered a deferred repayment schedule for some terms. Additionally, some EIDL advances are structured as grants that don’t need to be paid back. 

EIDL Loan vs. EIDL Advance

EIDL loans and EIDL advances are not handled the same way when it comes to loan forgiveness. Understand each one’s repayment requirements to make sure you have a strategic payoff plan. 

EIDL Loan

Your EIDL loan is not forgivable. Borrowers do have to pay back EIDL loans according to the SBA’s repayment terms. This can be confusing, especially with all of the different COVID-19 relief programs out there. But if your business received any type of EIDL loan, you must follow the repayment terms just as you would with any other traditional or online small business loan

EIDL Advance

The only way to get EIDL loan forgiveness is through the Targeted and Supplemental EIDL Advance program. The good news is that there’s no structured process to earn forgiveness like other grant programs. The bad news is that not all small businesses qualify. To be eligible for the $10,000 Targeted EIDL Advance, a business must:
  • Be located in a low-income area. (Use this SBA mapping tool to check.)
  • Experience a revenue reduction of 30% or more for at least eight weeks since March 2, 2020.
  • Have a maximum of 300 employees.
Some small businesses may also be eligible to receive an extra $5,000 through the Supplemental Targeted Advance. In order to be eligible, applicants must:
  • Be located in a low-income area.
  • Experience a revenue reduction of 50% or more for at least eight weeks since March 2, 2020.
  • Have a maximum of 10 employees.
In order to apply for one or both of the advances, you must first apply for an EIDL loan. Once approved, you don’t actually have to take out the EIDL loan in order to qualify for the advance funds.

EIDL Loan Terms

Non-COVID EIDL loans come with the following loan terms:
  • Maximum interest rate of 4%
  • $2 million maximum loan amount 
  • Repayment period up to 30 years
  • Collateral required for loans of $25,000 or more
COVID-19 EIDL loans have slightly different loan terms:
  • Maximum interest rate 3.75% for businesses, 2.75% for nonprofits
  • $2 million maximum loan amount (this amount was originally $50,000 but has been raised)
  • Repayment period up to 30 years
  • Collateral required for loans of $25,000 or more
  • Personal guarantee for loans $200,000 or more
The SBA also outlines specific credit requirements for COVID-19 EIDL loans. A minimum 570 credit score is required for loans up to $500,000. For loans over that amount, applicants must have at least a 625 credit score. 

Extended EIDL Deferment Periods

If you’re wondering how to pay back an EIDL loan, you have some time. In March, 2021, the SBA announced deferment for all EIDL loans, including both non-COVID-19 and COVID-19 EIDL loans. The length of deferment depends on when you received your EIDL funds. 
  • 2020 EIDL Loans: Both types of EIDL loans made in 2020 receive a total two-year deferment (original deferments lasted only one year). 
  • 2021 EIDL Loans: Both types of EIDL loans made in 2021 receive a total 18-month deferment (original deferments lasted only one year). 
  • EIDL Loans Prior to March 2, 2020: EIDL loan borrowers who received funds before the pandemic hit the U.S. in March 2020 received two deferrals that ultimately deferred payments until March 2021. Since then, the SBA has announced an additional 12-month extension lasting until March 31, 2022.
Borrowers should use the date of the note to calculate when the first payment is due. Simply add the correct number of months based on your applicable deferment to determine the due date. 

Which Types of Loans Are Forgivable?

The SBA offered two types of forgivable funding for small businesses impacted by COVID-19. The Targeted and Supplemental EIDL Advances are one type. The other type is the Paycheck Protection Program (PPP). Applications for PPP funding are now closed, but borrowers who received PPP funds should be clear on how to qualify for loan forgiveness.PPP loan forgiveness differs based on first-draw loans and second-draw loans.

PPP First-Draw Loan Forgiveness Eligibility

During the 8 to 24 weeks from loan funds being disbursed, the business must:
  • Maintain employee and compensation levels
  • Spend loan funds on payroll and other eligible expenses
  • Spend at least 60% of loan funds on payroll

PPP Second-Draw Loan Forgiveness Eligibility

In the 8 to 24 week window following fund disbursement, the business must: 
  • Continue to maintain employee and compensation levels
  • Spend loan funds on payroll and other eligible expenses, which were expanded during the second round
  • Spend at least 60% of loan funds on payroll
Additionally, there is a new streamlined loan forgiveness application for loans of $150,000 or less. 

Paying Back an EIDL Loan

You know that you do have to pay back an EIDL loan, but how does the process work? First, determine your first due date based on the SBA’s new extended deferment period. Then decide whether or not you want to start making early payments. Interest does continue to accrue during the deferment period and there’s no penalty for paying off your loan balance early. Some small businesses borrowed EIDL loan funds early on in the pandemic amidst short-term disturbances and general economic uncertainty. Whether you wound up not needing the funds you received or your business has bounced back, you can save on interest by paying off the loan sooner rather than later.The SBA makes it easy to pay back your EIDL. If you decide to start making payments, you have four options: online, phone, bill pay, or mail. You will need your 10-digit SBA loan number regardless of the payment method you choose. 

Learn More About Small Business Loans From Lantern

An EIDL loan is just one type of financing that small businesses can use to help them through periods of hardship. Before taking out any loan, it’s smart to compare all of your financing options. Lantern by SoFi removes the burden of manually checking loan offers with multiple lenders. Instead of repeatedly going through a time-consuming pre-qualification process with a limited number of lenders, Lantern gets you started with one simple form. Then you get access to our entire network of lending partners. It’s a diverse group with different options for businesses with different types of structures. Get side-by-side offers that could include:

The Takeaway

EIDL loans do have to be paid back, but you possibly may now have more time before your first payment is due than you may have originally thought. But if you received a Targeted or Supplemental EIDL Advance, you can treat the funds like a forgivable grant. Ready to see if you’re making the most of your small business financing opportunities? Get started with Lantern Credit today.
Photo credit: iStock/MarsYu
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About the Author

Lauren Ward

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
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