EIDL, which stands for Economic Injury Disaster Loan, is an emergency advance that was created for struggling businesses in response to the Coronavirus outbreak, which made it nearly impossible to stay afloat.
However, as a small business, having to repay a loan only adds fuel to an already challenging situation for your company, in which case, you may wonder if EIDL loans can be forgiven. The answer to this depends on various factors, which we will get into next.
Can EIDL Loans & Grants Be Forgiven?
The EIDL Advance comes in two forms: a grant and a loan. The grant part of the program provides business owners with emergency funds to help with operating expenses. It is also paid out per employee up to 299 employees and has a cap of $10,000. However, it does not have to be repaid.
On the other hand, EIDL loans, which can be as high as $2 million, need to be repaid. However, any loans received before April 3, 2020, can have the EIDL forgiven by switching it to a forgivable Paycheck Protection Program Loan (PPP).
EIDL Loan Forgiveness Rules
To qualify for grants under the new EIDL advance, applicants must be in business by January 31, 2020, and have under 300 employees. Their revenue must also have dropped more than 30% for at least one 8-week period between March 2, 2020, and December 2021 as compared to the same time period in the year before. The company must also be located in a community that is considered low income.
You can also still apply for the new grant even if you were a recipient of the old grant, provided you didn’t max out the $10,000 cap. The EIDL advance is also not taxed as gross income, nor does it affect the amount of funds you can receive from a PPP loan.
However, the grants can only be used on certain expenses, such as paid sick leave due to the Coronavirus and increased costs due to the interruption of the supply chains, and more.
Meanwhile, the EIDL loan that does have to be repaid also includes more favorable terms, such as an interest rate cap of no more than 4% per year, and the length of your repayment term will be based on your ability to repay the loan. Furthermore, if you have a disaster loan that has remained in regular servicing status since March 1, 2020, you qualify to have your loan payments deferred until December 31, 2021.
Lastly, you can apply for both the EIDL Advance and the PPP loan; however, the EIDL Advance amount will reduce the loan forgiveness amount on the PPP loan up to $10,000. Applying for EIDL Advance and PPP loan forgiveness in a timely manner is imperative to receiving disaster relief.
Therefore, take the time to educate yourself thoroughly on the rules and guidelines for PPP and EIDL forgiveness to help the application process go as quickly and smoothly as possible and beat the crowds.
If you are unsure which EIDL loan you qualify for, according to Lantern by SoFi, when submitting your application, “the SBA will look at your application to determine whether you also qualify for one or both the EIDL Advances,” so be ready to provide proof of eligibility.