What Is an Economic Injury Disaster Loan?

Owning a business helps you make a living delivering a product or service people need, and possibly even bring new jobs to your area. But what happens when your business is threatened by the kinds of disasters that  have made the news a lot in recent years, like wildfires or floods?

Insurance may help, but there's another option that might be available to you: an Economic Injury Disaster Loan (EIDL). If you're a small business owner, this could be the best way to get the money to keep your business going while you recover. Here's a closer look at economic injury disaster loans so you can decide if they’re right for you.

What Is an Economic Injury Disaster Loan (EIDL)?

An Economic Injury Disaster Loan (EIDL) is a small business loan for those who have suffered economic injury as a result of a declared disaster. Qualifying disasters include:

• Biological incidents

• Coastal storms

• Dam/levee breaks

• Earthquakes

• Fires

• Floods

• Hurricanes

• Mudslides/landslides

• Severe ice storms

• Severe storms

• Snowstorms

• Straight-line winds

• Tornadoes

• Tropical depressions

• Tropical storms

• Typhoons

• Winter storms

Disaster declarations are often made by the President of the United States, though governors can declare a state of emergency, underlining the need for federal assistance. You can view a list of federally declared disasters going back several years on the Federal Emergency Management Agency (FEMA) website. 

The tool lets you search by year, location, and disaster type so you can see whether your business has been impacted by a qualifying disaster. If you find a disaster that affected you, note its code on the FEMA site, as well as the incident period. You'll need this information when you apply for your loan.

EIDLs aren’t debt relief. The EIDL program provides loans up to $2 million at relatively low interest rates to small business owners unable to get credit elsewhere. To receive assistance, you apply for the loan through the Small Business Administration (SBA).

If you experience damage to your buildings or business property as a result of a declared disaster, you can apply for repair assistance through a related program, the business physical disaster loan from the SBA.

An EIDL is meant to help your business operate as close to normally as possible after a disaster, so it's not for expanding your business or upgrading business equipment. The SBA only allows you to use this money for working capital and normal business expenses, such as the continuation of healthcare benefits to employees, and paying rent, utilities, and other fixed debt payments. 

Related: Hardship programs for debt

What does EIDL stand for?

A lot of people wonder, "What does EIDL stand for?" The answer is Economic Injury Disaster Loan. It's a small business loan for businesses affected by a severe natural disaster who may not be able to secure credit elsewhere due to poor credit or other factors that make traditional lenders less willing to work with them. 

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Who Qualifies for an Economic Injury Disaster Loan (EIDL)?

To qualify for an EIDL, you must meet these criteria:

• You run a small business, a small agricultural cooperative, or a private nonprofit organization.

• As a result of a declared disaster, your business can’t meet its financial obligations and pay its regular and necessary operating expenses.

• Your business is in the disaster area.

• The SBA determines that you can’t qualify for credit elsewhere.

You need to provide Social Security numbers (SSNs) for all applicants when you apply for an EIDL. That suggests that you must be a U.S. citizen or legal permanent resident (green card holder) to qualify.

EIDLs are intended to cover things like rent and utilities on your buildings, fixed debt payments, and the continuation of health insurance benefits for employees. The maximum amount you may borrow is $2 million, but the SBA may set a lower amount. You should note that if you also apply for a business physical disaster loan, the maximum combined loan amount for this and your EIDL is $2 million—you cannot borrow $2 million on each loan.

EIDLs don't cover loss of expected profits, or a decline in sales. You also can't use them to expand your facilities, buy fixed assets, repair physical damages, refinance debt, pay dividends or bonuses, or repay loans to shareholders or principals. 

If you seek to borrow more than $50,000, you need to provide collateral. This is something you agree to give up to the SBA if you fail to keep up with your loan payments. The SBA prefers real estate collateral. Those borrowing $200,000 or more are required to put their primary residence up as collateral.

EIDL Application Requirements and Documentation

There are a few ways you can apply for an EIDL: on the SBA website, or in person at a FEMA Disaster Recovery Center. You can also contact the SBA and request paper forms if you prefer.

No matter how you choose to apply, you need documentation to prove that you qualify for an EIDL, including:

• Contact information for all applicants: This should include the names, addresses, phone numbers, and emails of all business owners applying for the loan.

• Social Security numbers for all applicants: Due to this restriction, only U.S. citizens and legal permanent residents can qualify for EIDLs.

• FEMA disaster number: Locate this by looking up the federally declared disaster that affected you on the FEMA website.

• Deed or lease information: This proves that you own the property, and that the property is or was inside the declared disaster area.

• Insurance information: You'll likely need to provide a copy of your policy, or at least the contact information for your insurer and your account number.

• Financial information: You must demonstrate that you suffered economic injury to obtain an EIDL, so the SBA wants to see records of your income and expenses before and after the disaster.

• Employer Identification Number (EIN): Your EIN is how the government recognizes your organization as a tax entity.

If you have any questions about the specific paperwork you need, contact the SBA or speak to someone at a FEMA Disaster Recovery Center for more information.

How Do Economic Injury Disaster Loans (EIDLs) Work?

You can apply for an EIDL through the SBA website. First, you select the disaster that's affected you. You can either select the state and county where your property is and view the disasters that affected that area, or you can view all federally declared disaster declarations and choose yours from the list.

Once you've selected your disaster, verify that the disaster that befell your business occurred during the incident period on the disaster declaration. (This information is all on the SBA website.) It also tells you the deadline for physical damage and economic injury filing. Generally, you have nine months after the government declared the disaster to apply for an EIDL. 

You also have to register for a free MySBA account. You set up a login and provide your personal and contact details. 

Once you're logged in, you can fill out the EIDL application form. You provide information about how the disaster impacted your finances, and upload documents. When that's done, you submit the form and wait for a response. 

The SBA tries to respond to applications within 21 days of submission. If you are approved and  accept a loan, you can defer your first payment for up to 12 months. Your balance doesn't accrue interest during this time. After the first year, any remaining balance accrues interest, but the interest rate won't exceed 4%.

Economic Injury Disaster Loans can have terms of up to 30 years, but the SBA determines your repayment schedule based on its estimate of your ability to repay. You're also free to pay off the loan early, without fees or penalties.

If you borrow more than $50,000, you’re required to pledge collateral. This is something you give a creditor permission to take from you and sell if you're not able to keep up with your loan payments. 

You usually have to pledge your primary residence as collateral if you borrow more than $200,000. However, those borrowing less could use other assets of at least equal value to the loan amount.

EIDL vs. EIDL Grant: Understanding the Differences

You may have heard about EIDL grants, or nonrepayable EIDL loan advances you don't have to pay back. This was a program the SBA put in place during the COVID-19 pandemic, when many businesses struggled due to social distancing requirements. 

These grants are not available now that the COVID-19 pandemic has ended. EIDLs are loans, meaning you are responsible for paying them back on the agreed-upon schedule.

Pros of an Economic Injury Disaster Loan (EIDL)

There are several benefits to taking out an Economic Injury Disaster Loan, including:

• Borrowing up to $2 million. Repayment terms can be up to 30 years, depending on your situation.

• No upfront fees or early payment penalties. There is no penalty for paying off an EIDL early.

• Low interest rates. Interest rates for EIDLs don’t exceed 4%, which may be lower than what a bank would offer you.

Cons of an Economic Injury Disaster Loan (EIDL)

Although an EIDL can come in handy during a disaster, there are a few cons to take note of before you apply.

• Can't replace lost sales or revenue. The loan is meant to cover financial obligations during the disaster that your business could have met under normal circumstances, not replace sales you lost.

• EIDLs over $50,000 require collateral. The SBA takes real estate collateral, or requires borrowers to pledge another asset if there's no real estate to secure the loan. At loan amounts of $200,000 or more, a borrower usually has to pledge their primary residence as collateral.

• Can't use the loan for repair or replacement of physical damages. Funds from an EIDL can only be used to cover necessary operating expenditures.

• Adds to your debt balance. While you may find financial relief temporarily, you’re still on the hook to repay an EIDL, which can add to your overall debt balance.

Other Options to Consider

If an EIDL just isn’t the right solution to help your business survive, there are other options you can look into, such as the following.

7(a) loans

The SBA also offers 7(a) loans to small business owners. You may qualify for one of these even if you're not in a declared disaster area. This might be the way to go if you need to borrow larger sums, or if you need money to cover things outside of what an EIDL allows. Loan amounts for standard 7(a) loans are anywhere from $500,001 to $5 million.

SBA Express Loans

An SBA Express Loan, another type of 7(a) loan, lets you borrow up to $500,000 as a revolving line of credit. You can borrow as much as you need up to your credit limit, pay it back, and borrow more again later if you need to. You can do this for up to 10 years, and then you’ll be in the repayment period and can’t borrow more. You may need to provide collateral to borrow more than $50,000.

Bank loans

Banks may offer your business a loan to cover repairs or expand. If you don't think you qualify for an EIDL, checking with a few local banks might be your best option. Interest rates might be a little higher than what SBA loans charge, but if you have a good credit score, you may not notice a significant difference.

Rethink your business operations

If you have exhausted your financial resources or are waiting to hear back on a loan application, it may be time to rethink your business operations. How can you get creative with generating revenue? You could try offering products and services virtually, providing gift card options, or creating a crowdfunding page. Amplify your efforts with your social media or email marketing to get your customer base to support your business.

When Personal Debt Piles Up

If you're still waiting to hear back on your EIDL application or you didn't qualify, you might be tempted to rely on personal guarantees or credit cards to make ends meet. While it's a natural reaction, it can also be a slippery slope. If you find that you're transferring balances between cards or you're struggling to pay your balances in full each month, that could be a sign that you need to explore personal debt relief options as well.

You may qualify for a consolidation loan on your own, or you may be able to reach a settlement with your creditors so they will accept less than what you owe but consider it full payment. It's worth exploring all your options before deciding which one is right for you. A reputable debt relief company like Freedom Debt Relief can help with that.

Alternatives When EIDL Isn't Enough

If an EIDL isn't providing the financial relief you hoped for, you may have to investigate other types of debt relief. Since EIDLs are usually only available to those who do not apply for credit elsewhere, you may not be eligible to take out a business loan. But reducing your personal debt could give you the breathing room you need. 

Here are some options to consider.

Negotiating with your creditors

Some creditors offer hardship assistance programs to customers struggling to keep up with payments. They don't often advertise these services, but if you call and explain your situation, your creditors might be willing to work with you. You may be able to negotiate for benefits like a lower monthly payment or a lower interest rate. You could also ask if they can waive late fees. 

Debt consolidation loan

A debt consolidation loan is a loan—often a personal loan or a home equity line of credit (HELOC)—that you take out to pay off other debts. This can work well if you have decent credit and can avoid racking up new debts. There are closing costs, but once you've got the money in hand, you can pay your other creditors, then pay back the consolidation loan in monthly installments.

Debt settlement

Debt settlement is when you ask your creditors to accept less than what you owe and consider it full payment. You can do this on your own, or with the help of a professional debt settlement company like Freedom Debt Relief. This only works for unsecured debts like credit card debt, though. EIDLs are secured debts, so you can't negotiate these directly. But if you can get some other debts off your plate, you may find it easier to make EIDL payments.