How to Apply for EIDL Loan Forgiveness

The Economic Injury Disaster Loan (EIDL) program, administered by the U.S. Small Business Administration (SBA), provided financial support to small businesses and non-profit organizations impacted by declared disasters, including the COVID-19 pandemic. While the program offered low-interest loans with long repayment terms, it is important to distinguish between the EIDL loan principal and the EIDL Advance. The EIDL Advance, an initial grant of up to $10,000, was designed as a grant and did not require repayment. Conversely, the EIDL loan principal itself is not subject to a forgiveness program akin to the Paycheck Protection Program (PPP) and must be repaid. However, the SBA does offer options for borrowers experiencing financial hardship to manage their repayment obligations.

Eligibility Requirements and Required Documents

Direct loan forgiveness, outside of the EIDL Advance, is not a standard feature of the program. Business owners facing difficulties repaying their EIDL loan can explore the Hardship Accommodation Plan (HAP) offered by the SBA. This plan allows eligible borrowers to temporarily reduce their monthly payments. To qualify for HAP, a loan must be less than 90 days past due at the time of the request. This temporary relief aims to provide breathing room for businesses to stabilize their financial position.

Documentation required for the Hardship Accommodation Plan varies based on the loan amount. For EIDL loans up to $200,000, the application process for HAP is streamlined and may not require extensive financial documentation. For loans exceeding $200,000, applicants may need to provide a current year profit and loss statement to demonstrate ongoing financial challenges. The SBA assesses the borrower’s ability to repay and the temporary nature of their financial difficulty to determine eligibility for reduced payments.

Beyond HAP, the implications of an EIDL loan, particularly upon business cessation, depend on the original loan amount and the business structure. For EIDL loans less than $25,000, the loans are unsecured and do not require a personal guarantee, meaning the business owner’s personal assets are protected if the business is a corporation or LLC. Loans between $25,000 and $200,000 are secured by business assets but are not personally guaranteed for corporate or LLC entities. If such a business closes, the SBA may require liquidation of business assets to satisfy the debt.

For EIDL loans exceeding $200,000, a personal guarantee was typically required from the business owner. If the business dissolves, the owner remains personally liable for the outstanding debt. The SBA may pursue collection efforts against the individual, which could include referral to the U.S. Treasury for collection. Therefore, understanding the specific terms of the original loan agreement, particularly regarding personal guarantees and collateral, is crucial for assessing potential relief options.

Submitting Your Forgiveness Application

Borrowers with EIDL loans of $200,000 or less can initiate the HAP request directly through the MySBA Loan Portal. This portal serves as a central hub for managing EIDL accounts, allowing borrowers to check balances, view payment due dates, and access statements. To use the portal, borrowers must register and create an account, using their SBA loan number for identification.

Upon logging into the MySBA Loan Portal, borrowers can navigate to their loan information page, where an option to enroll in the Hardship Accommodation Plan is available. The system guides the user through the process, which generally involves confirming eligibility and acknowledging the terms of the reduced payment plan. While payments are reduced, interest continues to accrue on the outstanding loan balance during the hardship period. This accumulation of interest could result in a larger balloon payment at the end of the loan term if not addressed.

For EIDL loans exceeding $200,000, the process for requesting hardship assistance or discussing repayment options requires direct communication with the SBA. Borrowers should email their request to the COVID-19 EIDL Servicing Center. It is advisable to include “Hardship Accommodation Plan” in the subject line of the email to ensure it is routed appropriately. A specialist from the SBA will then respond to guide the borrower through the specific application requirements and provide details on available relief options for larger loan amounts.

After Application Submission

Once an EIDL Hardship Accommodation Plan request is submitted, the SBA reviews the application. If approved, the borrower will receive confirmation of their enrollment in the Hardship Accommodation Plan, outlining the reduced payment schedule. The plan allows for payments to be reduced to 10% of the regular monthly amount, with a minimum payment of $25, for six months. Borrowers should monitor their MySBA Loan Portal account for updates and official communications from the SBA.

During the six-month reduced payment period, it is crucial for borrowers to remember that interest continues to accrue on the full outstanding principal balance of the EIDL loan. This means that while immediate cash flow is improved, the total amount owed over the life of the loan may increase. At the conclusion of the hardship period, borrowers are generally expected to resume their regular principal and interest payments. In some cases, extensions or renewals of the hardship plan may be possible depending on ongoing financial circumstances and SBA policy at the time.

If an EIDL loan is not forgiven or if a hardship plan is not sufficient, borrowers are responsible for repaying the full loan amount according to the original terms. Failure to make payments on an EIDL can lead to the loan being referred to the U.S. Treasury for collection, which could impact the borrower’s credit and eligibility for future federal assistance.