Advice For Business Owners And Advisors

Gary Romano, CEO, Civitas Strategies, has personally advised thousands of small businesses.

The Covid-19 Economic Injury Disaster Loan program was created to help small businesses survive the pandemic’s financial challenges, and it certainly did help many. But after working with hundreds of small business owners with EIDLs, it’s clear to me that those who fully understood it and are now paying it back without financial pressure are rare.

Most of the business owners I’ve personally worked with fall into two categories: those who, in their desperation, didn’t fully understand the loan’s terms and requirements, or those who saw it as an opportunity for risky growth—growth that likely would never have been approved through traditional business financing. While the EIDL was a lifeline for many, for others, it has become a burden.

EIDL’s Restrictions: What Some Owners Missed

The EIDL came with strict rules that were easy to overlook, especially for business owners who were focused on survival during the pandemic. I’ve found many didn’t realize the loan was meant for working capital to cover daily operations, not for investing in new ventures. Another common misstep was closing or relocating the business without notifying the SBA, which was also required.

These seemingly small oversights could lead to serious consequences. Violating the loan’s terms could result in the SBA sending the loan to the U.S. Treasury for collection. For loans exceeding $200,000, where personal guarantees were involved, this could mean that not only the business but also the personal assets of the owner were at risk. As a result, many business owners who took the EIDL but didn’t understand the requirements and inadvertently violated them may be worried about facing penalties.

The Long-Term Cost

Now, as businesses are emerging from the pandemic and trying to recover, they’re facing the long-term burden of the EIDL. Even though the loan came with a low interest rate and long repayment terms, it’s now catching up with many business owners. The Business Journals reported that business owners who took out an EIDL “are more likely to be struggling years later than companies that didn’t tap the financial-assistance initiative.”

Many owners I’ve worked with took the loan for risky ventures that might not have been approved through traditional business loans. The hope was that the extra cash would help them grow out of the pandemic, but for a lot of those businesses, that gamble didn’t pay off. They are now left with a loan they can’t afford to repay and a business that hasn’t rebounded the way they had hoped.

Hardship Accommodation Plan: A Temporary Fix

The SBA’s Hardship Accommodation Plan was introduced to ease the burden of EIDL repayments for struggling businesses. It allows businesses to pay just 10% of their monthly loan payment for up to six months. While this can help struggling businesses, I believe it’s a temporary fix. Interest continues to accrue during this time, which means that while businesses may get short-term relief, they could face ballooning payments down the line.

The process could also introduce new challenges. For businesses with loans under $200,000, the application is relatively simple, but for those with loans over $200,000, the process becomes more complex, requiring additional financial reports.

Furthermore, business owners applying for HAP may face risks if they have previously violated the EIDL terms. For instance, if they have moved locations or sold the business without notifying the SBA, they could expose themselves to further scrutiny. The very process meant to relieve some of their burden could inadvertently open up new risks.

Moving Forward: What Needs To Happen

I believe we need to ask ourselves how we’re going to help these business owners. I’ve found many are hanging on by a thread, making payments because they fear admitting they’ve already closed or moved without proper approval. They’re afraid of what happens if they reveal they’ve already failed to comply with EIDL terms.

As businesses face the consequences of taking on an EIDL without fully understanding its terms, it’s clear that they need more support. Business owners need to ensure they fully understand the terms of their loans, including the restrictions and reporting requirements, and seek professional help if necessary to navigate the complexities of the EIDL and HAP programs.

Small business coaches and advisors play a key role in educating business owners about their options, ensuring compliance and offering long-term solutions for managing repayment. They can also help business owners fill out financials such as cash flows and other documents needed for the HAP.

Business professionals can also consider contacting policymakers advocating for policies that offer more than short-term fixes and address the underlying challenges small businesses are facing.

In the end, while the Covid-19 EIDL program has helped many businesses, for others, it has created new challenges. As we move forward, we need to find ways to address the lasting impact of this policy before we create new ones that add to the burden.

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