From Short-Term Relief to Long-Term Hardship: Some Small Businesses Struggle with Debt Burdens from COVID-19 Economic Injury Disaster Loans

Executive Summary

Many small businesses turned to government assistance to weather the most challenging days of the COVID-19 pandemic following its onset in March 2020. One of the largest government programs administered through the US Small Business Administration (SBA) during the pandemic was the COVID-19 Economic Injury Disaster Loan (EIDL) program, which provided $380 billion in loans to struggling small businesses. However, many firms that stayed in business through the end of the pandemic with outstanding COVID-19 EIDL loans (hereafter referred to as “EIDL loans”) have elevated amounts of outstanding debt and are in more precarious financial condition than those without outstanding EIDL loans. Data from the Federal Reserve’s 2023 Small Business Credit Survey (SBCS) show that, compared to firms without outstanding EIDL debt, those with it were more likely to experience challenges making payments on debt during the year leading up to the survey and were less likely to be profitable. Additionally, compared to firms without EIDL debt, those with it were less likely to be fully approved for new financing and were more likely to attribute denials to excessive debt levels. While SBCS data suggest that the performance of firms with outstanding EIDL debt lags that of firms without it, it is unclear from SBCS data if businesses with outstanding EIDL loans would have had better outcomes had they chosen not to borrow from the EIDL program.