By Roy Salisbury

The COVID-19 Economic Injury Disaster Loan (EIDL) program provided $380 billion in loans to struggling small businesses, with the SBA approving around 4 million EIDL loans averaging approximately $96,000 each. According to the 2023 Small Business Credit Survey (SBCS), 28% of small firms had an outstanding balance on an EIDL loan. These businesses face considerable financial pressure, including challenges with making payments on debt and lower profitability compared to firms without EIDL debt. 

EIDL debt significantly impacts a small business's ability to secure new financing. Firms with outstanding EIDL balances were less likely to be fully approved for new financing compared to those without EIDL loans. Half of the firms with outstanding EIDL debt that were not fully approved cited elevated debt levels as the reason. The added debt burden from EIDL loans may affect a firm's ability to obtain new financing for growth or working capital. 

The long-term financial implications of EIDL debt for small businesses are significant and multifaceted. Businesses with outstanding EIDL balances are more likely to have high debt burdens, face profitability challenges, and experience difficulties making debt payments. With loan terms up to 30 years, some business owners express concern about the extended repayment period. The 3.75% interest rate for small businesses continues to accrue during deferment periods, potentially increasing the overall debt burden. Loans over $25,000 require collateral, which may tie up business assets long-term. In severe cases, businesses unable to manage EIDL debt may need to consider bankruptcy as a means of discharging the loan and seeking financial relief. 

These long-term implications suggest that while EIDL loans provided crucial support during the pandemic, they have created ongoing financial challenges for many small businesses that may persist for years to come. 

Businesses must carefully manage cash flow to accommodate regular loan payments over an extended period, which can affect their ability to invest in growth or handle unexpected expenses. The long-term nature of the loan and personal guarantees can impact the business's and owner's credit profiles, potentially affecting future borrowing capacity. While initially restricted, the SBA later expanded the allowable use of funds to include paying most debts, which could impact strategies for managing overall debt load. 

To effectively manage EIDL debt, businesses should create long-term financial projections that account for loan repayments, consider the impact of the loan on future growth opportunities and capital needs, explore options for loan forgiveness or renegotiation if facing financial difficulties, and regularly review and adjust financial strategies to ensure the ability to meet loan obligations while maintaining business operations and growth.