In 2020 and 2021, small businesses heavily relied on COVID-19 Economic Injury Disaster Loans to survive the economic impacts of the pandemic. However, some of these businesses are now facing challenges in repaying these loans, causing financial strain. A report from the 12 Federal Reserve banks indicates that small businesses with outstanding COVID-19 Economic Injury Disaster Loans are in a more precarious financial situation compared to those who have paid off their loans.
One such business owner is Dwayne Thomas, who owns Greenlight Creative, an events lighting company in Portland, Oregon. He secured a $500,000 EIDL loan in 2020 when the events industry came to a standstill due to the pandemic. While the loan provided critical support for his business during a difficult period, the 30-year repayment term has altered Thomas’s retirement plans and placed a significant debt burden on his otherwise profitable business.
The EIDL program aimed to offer financial assistance to small businesses by providing loans with a 30-year term and a 3.5% interest rate, mainly directed towards covering operational expenses. Despite the vital support provided by these loans, data from the Small Business Credit Survey suggests that businesses with outstanding EIDL debt are facing higher debt levels, struggling to make payments, and experiencing challenges in obtaining additional credit.
Colby Janisch, a brewer at 902 Brewing Company in Jersey City, New Jersey, also received an EIDL loan of approximately $400,000. Unlike traditional loans used for specific assets, the EIDL funds were utilized for rent and overhead costs, making it challenging for Janisch’s business to pursue additional loans for necessary investments due to the existing debt burden.
While some businesses acknowledge that the EIDL loans were instrumental in preventing them from shutting down, the survey implies that these loans have placed a strain on the financial health of businesses that are yet to repay them. Despite the complexities surrounding the repayment of EIDL loans, the long-term implications on the financial viability of small businesses remain a subject of ongoing concern.
