Small Businesses with EIDL Debt Have Difficulties Getting the Financing They Need

September 5, 2024

Delaney Sexton
Contributing Editor

Small Businesses with EIDL Debt Have Difficulties Getting the Financing They Need

During the pandemic, there were two key programs for small businesses to turn to as they weathered unstable economic conditions: the Paycheck Protection Program and the COVID-19 Economic Injury Disaster Loan Program. Lenders have spent the last 4 years managing their PPP loan portfolio and navigating its unique problems, but they did not play a role in EIDL. Although the COVID-19 EIDL program is over, many small businesses are still carrying debt from pandemic EIDLs which becomes a major concern when businesses with EIDL debt seek new financing.

The Federal Reserve Banks found that firms with an outstanding EIDL balance were less likely to be fully approved for funding in comparison to firms that never received an EIDL. While having an EIDL is not the sole cause of lower approval rates, the increased level of debt is weighing those small businesses down. Of small businesses with outstanding EIDL debt that were not fully approved for financing, half of them said that elevated debt levels were the cause of their partial denials.

Businesses with outstanding EIDL debt were equally as likely as those who did not receive an EIDL to seek new financing, but some businesses with EIDL debt felt compelled not to apply for financing. Those with EIDL debt were more likely to cite not wanting additional debt as a reason for not seeking new financing. Only 13% of small businesses without EIDL debt said they did not seek financing because they did not want to incur more debt, but 29% with EIDL debt said the same.

About half of all small businesses surveyed reported that they received an EIDL. Almost 60% of small businesses that did get a COVID-19 EIDL still have outstanding debt. That represents a relatively small portion out of all small businesses surveyed with 28% of all businesses have outstanding EIDL debt. Nonetheless, it is still important to recognize that more than a quarter of small businesses are burdened with EIDL debt and may not be able to get the financing they need because of it.

Source:
Federal Reserve Banks Report