Misera, From Short-Term Relief to Long-Term Hardship (Fed SBCS)
Summary
A report by Lucas Misera of the Federal Reserve Bank of Cleveland, in the Federal Reserve Banks small business series, uses data from the Federal Reserve's 2023 Small Business Credit Survey (SBCS). Its executive summary says the COVID-19 Economic Injury Disaster Loan (EIDL) program, administered through the US Small Business Administration, provided $380 billion in loans to struggling small businesses. It says firms with outstanding EIDL loans were more likely to experience challenges making payments on debt in the year leading up to the survey and were less likely to be profitable than firms without such debt. The report also says it is unclear from SBCS data whether businesses with outstanding EIDL loans would have had better outcomes had they chosen not to borrow.
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“Misera, From Short-Term Relief to Long-Term Hardship (Fed SBCS).”
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F E DE R A L R E SE RV E BA N K S of
Atlanta • Boston • Chicago • Cleveland • Dallas • Kansas City • Minneapolis
New York • Philadelphia • Richmond • St. Louis • San Francisco
From Short-Term EXECUTIVE SUMMARY
Many small businesses turned to government assistance
Relief to Long-Term
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
Hardship: Some 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.
Small Businesses However, many firms that stayed in business through the
end of the pandemic with outstanding COVID-19 EIDL loans
Struggle with Debt
(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
Burdens from 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
COVID-19 Economic payments on debt during the year leading up to the survey
and were less likely to be profitable. Additionally, compared to
Injury Disaster Loans
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
AUTHOR with outstanding EIDL loans would have had better outcomes
Lucas Misera, Federal Reserve Bank of Cleveland had they chosen not to borrow from the EIDL program.
This work is licensed under a Creative Commons Attribution NonCommercial 4.0 International License.
10.55350/sbcs-20240820
OVERVIEW operations at some point. Some open-ended comments
in the SBCS highlighted the importance of the capital
Following congressional approval, the SBA expanded extended to businesses through the EIDL program, as
its EIDL program—originally intended to support small many respondents mentioned that EIDL loans had helped
businesses affected by a natural disaster—to include those them stay in business during the most challenging days of
impacted by COVID-19.1 From March 2020 until its closure the pandemic. However, many respondents also noted the
in 2022, the SBA’s COVID-19 EIDL program extended substantial burden associated with repaying these loans.
capital to small businesses to help them cope with the A healthcare and education business owner approaching
effects of the pandemic. At the time of the program’s retirement age said,
closure in 2022, the SBA had approved around 4 million
EIDL loans, averaging approximately $96,000 per loan.2 “While we were relieved to be approved for
As of late 2023, over $300 billion in EIDL balances and receive funding from the SBA [COVID-19
remained outstanding.3 Some details of EIDL loans are
EIDL loan], it will take me until I am 90 years
shown in Table 1.
old to repay. And the repayment will be a
During the pandemic, the EIDL program was among the
largest sources of aid from the federal government to small challenge. But there was no other choice if
businesses, second only to the $800 billion Paycheck we were to stay in business.”
Protection Program (PPP), also administered by the SBA.4
One important difference between the PPP and EIDL Using employer-firm data from the SBCS, including new
programs is that PPP loans are eligible for forgiveness, while data from a special-topic module in the 2023 SBCS, this
EIDL loans are not. Instead, EIDL loans function more like publication explores the financial condition of firms with
traditional loans. Many businesses sought funds from both outstanding EIDL debt and highlights the types of firms most
programs; data from the Federal Reserve’s SBCS show that, likely to have had outstanding EIDL balances as of late 2023.
during the pandemic, around half of the businesses that The 2023 SBCS shows that firms with EIDL debt were more
applied for PPP loans also applied for EIDL loans. likely to have higher amounts of overall debt outstanding and
less likely to be profitable. It is unclear from SBCS data if
EIDL loans provided support to businesses forced to EIDL loans affect the financial conditions of firms differently
navigate an uncertain environment following the onset than other types of debt or if EIDL loans are simply correlated
of the pandemic. Most businesses experienced sharp with elevated levels of debt that ultimately impact firms.
declines in revenues and disruptions in supply chains. Additionally, more research is needed to identify if having
In the 2020 SBCS, fielded around six months after the outstanding EIDL debt led to worse financial conditions for
onset of the pandemic, a quarter of the respondents said firms that stayed in business through the pandemic or if firms
they had temporarily closed at some point because of the in worse financial conditions than their counterparts were
pandemic, while more than half said they had reduced their more likely to pursue these loans.
TABLE 1. EIDL LOAN CHARACTERISTICS
Loan term 30 years
Interest rate 3.75% for for-profit businesses; 2.75% for private nonprofit organizations
$500,000 for loans approved before October 8, 2021; $2 million for those
Maximum loan amount
approved on or after October 8, 2021
Collateral Required for loans greater than $25,000
Source: US SBA
1 SBA’s Handling of Returned COVID-19 Economic Injury Disaster Loan Funds and De-obligations of Approved Loans.
2 Author’s calculations from SBA data. See https://www.sba.gov/sites/default/files/2022-04/COVID-19%20EIDL%20TA%20STA_04282022_Public-508.pdf.
3 Author’s calculations from the SBA’s loan program performance dataset. See https://www.sba.gov/document/report-small-business-administration-loan-program-
performance.
4 The PPP opened in early April 2020 and closed in mid-2021. PPP loans were forgivable if used for designated purposes such as paying mortgage or rent obligations,
payroll costs, or interest from prepandemic debt. Firms that met certain conditions were eligible to apply for a second PPP loan. If not forgiven, PPP loans carried an
interest rate of 1%, with maturities of 2–5 years. For more on the SBA’s PPP, see https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-
protection-program.
From Short-Term Relief to Long-Term Hardship: Some Small Businesses Struggle with Debt Burdens from COVID-19 Economic Injury Disaster Loans 2
FIGURE 1. SHARE OF 2023 RESPONDENTS BY EIDL DEBT STATUS
Had outstanding debt
Source: 2023 SBCS, Federal Reserve Banks.
Received Did not receive
from an EIDL loan an EIDL loan but an EIDL loan
28% paid off balance 56%
16%
Source: 2023 SBCS, Federal Reserve Banks.
Financial Characteristics of Firms with outstanding debt (including, but not limited to, EIDL loans).
Outstanding EIDL Loans Just over half of firms with outstanding EIDL debt reported
challenges with making payments on their debt in 2023
Forty-four percent of small employer firms (those compared to just 29% of firms that had never received
with 1–499 employees) that responded to the 2023 EIDL loans. Furthermore, firms with outstanding EIDL debt
SBCS indicated that they had received an EIDL loan were 11 percentage points more likely than those that had
at some point. At the time of that survey, administered never received EIDL loans to say they were either operating
from September through November 2023, 28% had an unprofitably or at break-even at the end of 2022. The
outstanding balance on an EIDL loan, as shown in financial burden associated with EIDL debt persists even
Figure 1.5 Firms continuing to carry EIDL debt at the time when controlling for firm characteristics such as firm age,
of the survey were in more precarious financial condition industry, or credit risk.
than those that either never had EIDL debt or had
received an EIDL loan but paid it off. Businesses that had received EIDL loans but repaid them
as of the fielding of the 2023 SBCS were in stronger
For firms in each state of EIDL debt at the time of the financial condition than those that had received EIDL loans
2023 SBCS, Figure 2 indicates their various financial but not yet repaid them. The data in Figure 2 indicate
conditions based on total debt held, challenges with that, among firms that stayed in business during the most
making payments on debt, and profitability. Each of these challenging days of the pandemic, some that had received
three indicators suggests that businesses with outstanding EIDL loans emerged as profitable, with relatively low debt
EIDL debt face considerable financial pressure. Firms with burdens. Firms that had never received EIDL loans faced
outstanding EIDL balances were more likely to have high financial pressure comparable to that of firms that had
debt burdens than those without these balances. While received EIDL loans and paid them off, with those in the
just 28% of firms that had never received EIDL loans had former category seeing a higher probability of operating at
more than $100,000 in outstanding debt, 67% of those break-even or unprofitably.
with outstanding EIDL balances had more than $100,000 in
Turning back to firms with
outstanding EIDL debt, their added
debt burdens may be contributing
FIGURE 2. FINANCIAL CHARACTERISTICS OF FIRMS BY EIDL DEBT STATUS to challenges with securing new
financing. Firms with outstanding
Had outstanding debt from an EIDL loan EIDL balances were as likely as
Received an EIDL loan but paid off balance those that had never received an
Did not receive an EIDL loan
EIDL loan to apply for any type of
financing in the 12 months prior to
the 2023 SBCS. However, firms
67% 62% with outstanding EIDL balances that
52% 51% applied for credit were less likely
than those that had never received
39% EIDL loans to be fully approved. The
33% 29%
28% 24% EIDL loans themselves are unlikely
the cause of the lower rates of full
approvals; rather, the elevated levels
>$100K in total Reported challenges making Was operating at break-even or of overall debt associated with
outstanding debt payments on debt in 2023 at a loss at the end of 2022
the EIDL loans are more likely the
Source: 2023 SBCS, Federal Reserve Banks. barrier to accessing new credit.6
Half of the firms with outstanding
5 Among businesses that reported having received EIDL loans, 36% said the loans were paid off by the time of the 2023 SBCS.
6 Lenders may consider a small business’s debt burden, regardless of its source, when assessing a firm’s ability to repay. Additionally, added debt burden may reduce
a business’s credit score, another factor considered by lenders. For example, in the 2023 SBCS, 82% of firms with no outstanding debt at the time of the survey were
low credit risk based on self-reported credit scores compared to 69% of those with outstanding debt.
From Short-Term Relief to Long-Term Hardship: Some Small Businesses Struggle with Debt Burdens from COVID-19 Economic Injury Disaster Loans 3
EIDL debt that were not fully approved cited elevated
debt levels as the reason compared to just a quarter of FIGURE 3. EIDL DEBT BY SELECT DEMOGRAPHICS
those without outstanding EIDL debt. The added debt
Share of firms that received an EIDL loan
burden that firms took on through EIDL loans to stay in
business during the pandemic may affect their ability to Share of firms with an outstanding EIDL
balance at time of 2023 SBCS
obtain new financing for growth or for use as working
capital.
Race and ethnicity of owner(s)
Additionally, firms with outstanding EIDL balances were
more likely than those without them to cite not wanting Asian 38% 57%
to incur more debt as a reason for not applying for new
financing. Among businesses that did not apply for
White 27% 43%
credit, 29% of those with outstanding EIDL balances
said they chose not to apply because they did not want
to accrue more debt. The same was true of 13% of Hispanic 24% 38%
nonapplicants that did not have outstanding EIDL debt.
Black 23% 32%
EIDL Loan Uptake and Outstanding Debt
Across Business and Owner Demographics
By race and ethnicity of firm ownership Owner age
Across race and ethnicity categories in the 2023 SBCS, Under 45 25% 33%
Asian-owned firms were most likely to have received
EIDL loans and most likely to still owe on EIDL loans.7
45–64 29% 44%
As shown in Figure 3, 38% of Asian-owned firms had
outstanding EIDL balances at the time of the survey
compared to just 27% of white-owned firms, 24% of 65 or over 28% 54%
Hispanic-owned firms, and 23% of Black-owned firms.
SBCS data from 2020 and 2021 show that Asian- Industry
owned firms were more likely than other subsets to seek
any type of financial assistance during the pandemic.
Leisure and hospitality 40% 51%
These firms experienced outsized effects from the
pandemic: Compared to their counterparts, Asian-
owned businesses were more likely to temporarily close Retail 32% 51%
because of the pandemic and to report a decline in
revenues between 2019 and 2020. At the time of the Manufacturing 30% 43%
2020 SBCS, Asian-owned firms were also more likely
to expect that sales would not normalize to Healthcare and education 24% 40%
prepandemic levels until 2022 or later, as they
anticipated a significantly lengthier recovery timeline
than did Black-, Hispanic-, or white-owned firms. Source: 2023 SBCS, Federal Reserve Banks.
By owner age
Businesses with an older primary owner—especially
those aged 65 or over—were more likely than those with
a younger primary owner to have received an EIDL loan By industry
at some point. However, those with an older primary Across industries, 2023 SBCS data show that firms in leisure
owner were more likely to have paid off their balances: and hospitality were among the most likely to be holding
While only around half of businesses primarily owned EIDL debt.8 Previous SBCS data show that the pandemic
by someone aged 65 or over that took out EIDL loans triggered steep revenue declines, reduced demand, and
still had outstanding balances at the end of 2023, the closures among leisure and hospitality firms. This likely left
same was true of around three-quarters of businesses many of these firms in need of funds to weather the effects
primarily owned by someone under 45 years old. of the pandemic. Throughout the pandemic, firms in leisure
7 The SBCS relies on US Census-defined categories of race and ethnicity; mutually exclusive race and ethnicity labels applied to a given business indicate that more
than half of that business has owner(s) of a given race or ethnicity.
8 Leisure and hospitality firms include restaurants, bars, fitness centers, and hotels. Retail firms include boutiques, ecommerce providers, grocers, and hardware stores.
From Short-Term Relief to Long-Term Hardship: Some Small Businesses Struggle with Debt Burdens from COVID-19 Economic Injury Disaster Loans 4
and hospitality were far more likely than those in most other
industries to pursue EIDL loans. Firms in retail were as likely
as those in leisure and hospitality to have received EIDL
loans but were more likely to have paid them off. This likely
reflects in part the somewhat stronger financial positions
of retail firms compared to those of leisure and hospitality
firms, as reported in the 2023 SBCS.9
Conclusion
"We are struggling to stay open due to losses
from COVID-19. I fear going out of business
with my EIDL loan hanging over my head. I
took the loan under great stress from [the
pandemic] . . . Sometimes I’m grateful that I
was given a chance to save my business, but
I also feel I should never have been approved
for the loan . . . Every day is a struggle.”
– Manufacturing business in California
Many respondents noted that EIDL loans were a vital
source of small-business funding during the pandemic,
aiding firms as they navigated significant disruptions to their
operations. That said, compared to firms that never took
out EIDL loans, firms with outstanding EIDL loans were less
likely to be operating profitably and were more likely to report
challenges making payments on debt. Furthermore, firms
with outstanding EIDL debt were less likely than those that
had never received EIDL loans to successfully apply for new
financing in 2023.
It is unclear from SBCS data whether firms that still have
EIDL debt would have performed better had they chosen
not to borrow from the program. Firms that never took out
or already repaid EIDL loans cannot fully represent the
alternative outcomes for firms that still have EIDL debt. The
survey also does not have adequate data on the risk of firm
closure to understand the impact EIDL loans may have had
on a firm’s chances of staying in business.
The survey does, however, capture the sentiment of firms
that took out EIDL loans. This sentiment suggests that EIDL
loans helped some firms stay in business but also created
headwinds for their financial stability and growth prospects.
9 Compared to leisure and hospitality firms, retail firms were more likely to report operating profitably (43% of retail firms compared to 34% of leisure and hospitality firms)
and less likely to describe their financial condition as “poor” (23% of retail firms compared to 28% of leisure and hospitality firms).
From Short-Term Relief to Long-Term Hardship: Some Small Businesses Struggle with Debt Burdens from COVID-19 Economic Injury Disaster Loans 5
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