COVID-19 has impacted small businesses in the US significantly. Many business owners are on the brink of bankruptcy. Other undertakings are struggling to stay afloat every day.
Small businesses are generally cash strapped. Due to the pandemic, enterprises have seen a massive reduction in sales, which is adding to this situation. Small organizations are either cutting costs or finding additional debt to finance their operations to survive.
In 2020, the US government launched several programs to offer relief to entrepreneurs. One of the loan programs specifically aimed at small business owners is EIDL.
However, there are various misconceptions about EIDL. One of the frequently asked questions is whether EIDL is forgivable. Read further to get an answer to this question.
What is EIDL?
SBA introduced this loan to provide small businesses and private non-profits funds to cover the losses due to the pandemic. Small businesses can avail of this loan to meet the routine operating expenses and working capital needs.
When first launched in 2020, the maximum limit of the loan was capped at $150,000. A business could avail the loan to cover 6 months of working capital funds or $150,000 whichever was lower.
With new enhancements to the EIDL in March 2021, an enterprise can get loans to a maximum of $500,000. If the 24-month working capital requirement is less than $500,000, then only the actual working capital amount will be approved as a loan.
The interest on this loan is 3.75% for small businesses and 2.75% for non-profits with a repayment term of 30 years.
Is EIDL forgivable?
The answer to this question is no, EIDL is not forgivable. People confuse it with PPP and assume that EIDL is also forgivable.
EIDL is a non-forgivable loan provided by SBA to small business owners who have to repay it after a deferment period. SBA has stated that the loan payments will become due after March 31, 2022.
Just like a regular loan, businesses have to repay the principal along with the interest. Another interesting factor is that interest on the loan accrues in the deferment period also.
Though EIDL is not a forgivable loan, businesses can still benefit from it due to the long repayment period and low interest rate. However, a full understanding of what it means for your business and the burden of a loan should be analyzed.
With signs of economic revival being doubtful in the near future, businesses should make use of this resource. Another advantage is that there is no prepayment penalty. Take the maximum loan you can get and repay it as and when you have surplus funds available.
Are you unsure if your business is eligible for EIDL? Do you want to request an increase in the EIDL or apply for a fresh loan? Our team at FinAccurate can help you with this. Schedule an appointment with us now.
If you would like to watch the video of this article, click on the link below:- Do You Want To Know If Your Economic Injury Disaster Loan Is Forgivable?
Other Accounting Related Information