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Is There a Prepayment Penalty on EIDL Loans?

Is There a Prepayment Penalty on EIDL Loans?; Learn more about economic injury disaster loans (EIDL) and potential prepayment penalties from Lantern by SoFi.
Susan Guillory
Susan GuilloryUpdated January 3, 2024
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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.
Some business owners who were negatively impacted by the coronavirus pandemic sought out an Economic Injury Disaster Loan (EIDL) from the Small Business Administration (SBA).If they wanted to pay back what they borrowed early, did they face a prepayment penalty on EIDL loans? And are there other EIDL loans besides those targeted toward recovery from Covid-19?

Are There Prepayment Penalties on EIDL Loans?

Let’s jump right in and address whether there’s a prepayment penalty on EIDL loans.

Pandemic EIDL assistance 

COVID-19 EIDL loan repayments were deferred for two years. The loans accrued interest during that period. Loan holders were welcome to start making payments on their loan before their deferral period was over. There were no penalty fees for paying off their loan early.However, the crucial fact here is that this only applies to Covid-19 loans. And the Covid EIDL program is no longer operating. As of January 1, 2022, SBA stopped accepting applications for new COVID-19 EIDL loans or advances. As of May 6, 2022, SBA was no longer processing COVID-19 EIDL loan increase requests or requests for reconsideration of previously declined loan applications. And as of May 16, 2022, the COVID-19 EIDL portal was closed.Regular disaster EIDL assistance The first payment for an EIDL that helps businesses hit by natural disaster is deferred for 12 months. There is no interest accrual for the first 12 months. The term is up to 30 years, with repayment term to be determined by ability to repay the loan.There is no pre-payment penalty for an EIDL for disaster assistance.

SBA loans that do have prepayment penalties

While there is no EIDL prepayment penalty, that’s not true for all kinds of SBA loans. If you ever consider applying for other SBA loans, be aware that some of them do charge fees if you pay them off early. The 7(a) loan is one example. If you have a loan with a repayment period of 15 years or longer, you’ll pay a prepayment penalty when you voluntarily prepay 25% or more of what you owe and that prepayment is made within the first three years that you have the loan.Here’s what you’ll pay in prepayment penalty fees for the 7(a) loan:
  • During the first year after disbursement: 5% of the amount of the prepayment
  • During the second year after disbursement: 3% of the amount of the prepayment
  • During the third year after disbursement: 1% of the amount of the prepayment
The 504 loan also has prepayment penalties. These start at the full interest rate (typically around 3% (of the debenture interest rate) on the remaining balance of the loan in the first year, and then reduce every year after that. By the 11th year (and beyond) on a 20-year loan, there is no prepayment penalty fee.If you’re considering applying for any SBA loan and think you might want to pay it off early, it’s wise to read the fine print first to understand whether the penalty fee would be less than the interest you’d pay if you didn’t pay the loan off early.There are other things to consider with SBA loans. Many require collateral. Real estate is the preferred collateral. Loans of $200,000 or less will not require the owner of the business to use their primary residence as collateral if it is determined the owner has other assets of equal quality and a value equal to or greater than the amount of the loan.Recommended: Understanding Different Types of Small Business Loans

How Can You Pay Back an EIDL Loan Early?

If you’ve decided to pay off your EIDL loan early since there is no prepayment penalty, here’s information on how to do it. You have two options: paying by mail or paying online.

Paying off your EIDL by mail

If you’d rather mail a paper check so you can track it, send a check or money order payable to the SBA to:U.S. Small Business Administration P.O. Box 3918  Portland, OR 97208-3918 Don’t send your payments to SBA’s Servicing Center or your payment will be delayed in processing.It's important to include: 
  • 10-digit SBA loan number
  • Business name
  • Borrower’s name
  • Borrower’s address
  • Tax ID/EIN/Social Security number
  • Account number

Paying off your EIDL online

If you’d prefer to make a digital payment, you can do so at Pay.gov. Debit cards, credit cards, and bank account transfers are all accepted forms of payment there. You’ll need to create an account by filling out information about you, your business, and your loan. Have your loan number handy.If you’re ready to pay off your loan in full, just enter the full amount due. You will also have the option to set up automatic payments if you’d prefer to pay it off over time. In this case, you can choose the day and amount you will pay. Note that once the deferment period is over, the SBA may set you up with an automated payment schedule if you haven’t already set this up.Whether you pay one lump sum or set up recurring payments, you will receive a confirmation email of your payment that you can keep for your records.Recommended: Installment Loan vs Revolving Credit: Know the Difference

Tax Implications for EIDL Advances and Loans

Great news here: the EIDL program loans are not taxable loans, and if you received an EIDL Targeted Advance or Supplemental Targeted Advance in recent years, that won’t be taxed either. You may be required to provide details on either your EIDL loan or Advance come tax time, but it shouldn’t increase what your business or you personally pay in taxes.Recommended: Are Business Loans Considered Income?

The Takeaway

The EIDL Covid-related loans did not impose a penalty for early payment. Those loans are no longer available. The SBA’s EIDL assistance for businesses hit by natural disasters have no pre-payment penalty.If the EIDL doesn’t seem like the right option for you, you may still be interested in getting some extra funding. Lantern by SoFi can help you with getting a small business loan online. Input a few details about your business and get multiple offers and rates from qualified lenders today.

Frequently Asked Questions

Should you pay your loan back early?
How do I pay back my EIDL loan?
How much is the penalty for paying off an SBA loan early?
Photo credit: iStock/Nuthawut Somsuk
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About the Author

Susan Guillory

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
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