SBA COVID-19 EIDL Financial Relief: Policy Options and Considerations

April 18, 2023 R47509

SBA COVID-19 EIDL Financial Relief: Policy
April 18, 2023
Options and Considerations
Bruce R. Lindsay,
Congress took several actions to provide financial relief in the wake of the Coronavirus Disease
Coordinator
2019 (COVID-19) pandemic including passing the Coronavirus Aid, Relief, and Economic
Specialist in American
Security Act (CARES Act; P.L. 116-136). The CARES Act made numerous changes to the Small
National Government
Business Administration’s (SBA) programs, including expanding eligibility for Economic Injury

Disaster Loans (EIDL). The CARES Act also authorized advance payments known as
Anthony A. Cilluffo
Emergency EIDL grants. SBA EIDLs are direct loans and provide up to $2 million for working
Analyst in Public Finance
capital including fixed debts, payroll, accounts payable and other bills that cannot be paid

because of the disaster’s economic impact. In contrast to EIDL, which must be repaid in full,
advances were paid to EIDL applicants by SBA. The advance payments did not require
Darryl E. Getter
repayment. SBA limited Emergency EIDL grants to $1,000 per employee, up to a maximum of
Specialist in Financial
$10,000.
Economics

P.L. 116-260, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act
Adam G. Levin
(Division N, Title III of the Consolidated Appropriations Act of 2021, hereinafter the Economic
Analyst in Economic
Aid Act), enacted on December 27, 2020, established the Targeted Economic Injury Disaster
Development Policy
Loan Advance (grant) program. The program provided a $10,000 advance payment to borrowers

located in low-income communities that had suffered a revenue loss greater than 30% over
specified time periods and had no more than 300 employees. SBA was required to provide first

priority in awarding the grants to eligible borrowers located in low-income communities that had
already received an Emergency EIDL advance payment below the $10,000 maximum, and second priority to eligible first-
time applicants located in low-income communities.
Demand for SBA EIDL was significant. According to a report issued by the Small Business Administration (SBA) Office of
Inspector General, SBA received 27.7 million applications for COVID EIDL by December 31, 2021. On January 1, 2022,
SBA stopped accepting applications for new COVID EIDLs or advance payments (grants). As of May 6, 2022, SBA’s
COVID EIDL funds were exhausted and SBA stopped accepting COVID EIDL loan increase requests or requests for
reconsideration. SBA closed the online COVID EIDL application portal on May 16, 2022. SBA approved over 3.9 million
EIDLs totaling over $378.4 billion; disbursed 5,781,390 EIDL advances (grants) totaling $20 billion; disbursed 601,058
Targeted EIDL Advance payment grants totaling over $5.2 billion; and disbursed 453,417 Supplemental Targeted EIDL
Advance payment grants totaling over $2.3 billion.
SBA has deferred repayment for all COVID EIDLs approved in calendar years 2020-2022 to 30 months from the date of the
note. As it pivots to the COVID EIDL repayment phase, there are indications that some borrowers are struggling to pay off
their loans. For example, one survey found that, as of December 2022, most small business owners reported that their local
economy remained below pre-pandemic levels of economic activity and that only 36% of small businesses were at or
exceeded pre-pandemic sales levels.
Consequently, there are current congressional discussions about the need for additional financial relief for those borrowers.
These discussions include policy options such as (1) reduced interest rates, (2) loan deferments without accrued interest, and
(3) loan forgiveness. Some opponents of additional financial relief for SBA COVID EIDL borrowers make arguments
including that additional financial relief could promote moral hazard, create repetitive financial relief for a single incident,
and/or make this type of financial relief a common practice and thus a deviation from the historical approach of providing
businesses with disaster loans rather than grants. Furthermore, there may be concern that financial relief policies could
compromise SBA’s ability to fund disaster loans for current and future disasters at current levels of program funding.

Congressional Research Service

SBA COVID-19 EIDL Financial Relief: Policy Options and Considerations

Introduction
The U.S. Small Business Administration (SBA) administers several types of direct disaster loans
to small businesses, nonprofit organizations, homeowners, and renters. The SBA Disaster Loan
Program has four major lending programs:
1. Real Property Disaster Loans for households;
2. Personal Property Disaster Loans for households;
3. Physical Disaster Business Loans for businesses of all sizes, often called
Business Physical Disaster loans; and
4. Economic Injury Disaster Loans (EIDLs) for small businesses and private
nonprofit organizations.1
Congressional interest in the SBA Disaster Loan Programs has increased in recent years,
primarily because small businesses are viewed as a means to stimulate economic activity and
create jobs. Congressional interest, however, became especially acute in the wake of the
Coronavirus Disease 2019 (COVID-19) pandemic’s widespread adverse economic impact, which
included domestic productivity losses, supply chain disruptions, major labor dislocations, and
significant financial pressure on both businesses and households. Congress passed several bills to
address the pandemic’s adverse impacts, including P.L. 116-136, the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act), enacted on March 27, 2020.
The CARES Act greatly expanded eligibility for SBA EIDL, to include, for the first time,
specified types of nonprofit organizations. Eligible small businesses and nonprofit organizations
suffering economic hardship could use SBA EIDLs for operating expenses such as employee
salaries, lease or mortgage payments, and utility payments. COVID EIDLs have an interest rate
of 3.75% for small businesses and 2.75% for nonprofit organizations.2 The loan terms are up to
30 years for repayment.
SBA COVID EIDL
The CARES Act also authorized the SBA
Loan Terms: 30 years for repayment
Administrator to provide up to $10,000 as an advance
Nonprofit Organization Interest Rate:
payment in the amount requested within three days
2.75%
after receiving an EIDL application from an eligible
Small Business Interest Rate: 3.75%
entity. Applicants were not required to repay the
SBA EIDL Advance: $1,000 per employee,
advance payment, referred to as an Emergency EIDL
up to a maximum of $10,000
grant, even if subsequently denied an EIDL. Due to
anticipated demand, SBA limited Emergency EIDL
grants to $1,000 per employee, up to a maximum of $10,000.
Additionally, P.L. 116-260, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and
Venues Act (Division N, Title III of the Consolidated Appropriations Act of 2021, hereinafter the
Economic Aid Act), enacted on December 27, 2020, established the Targeted Economic Injury
Disaster Loan Advance (grant) program. The program provided a $10,000 advance payment to
borrowers located in low-income communities that had suffered a revenue loss greater than 30%
over specified time periods and had no more than 300 employees. SBA was required to provide
first priority in awarding the grants to eligible borrowers located in low-income communities that

1 For more information about SBA disaster loans, see CRS Report R44412, SBA Disaster Loan Program: Frequently
Asked Questions, by Bruce R. Lindsay.
2 For more information about SBA disaster loan interest rates, see CRS Report R46963, SBA Disaster Loan Interest
Rates: Overview and Policy Options, by Bruce R. Lindsay et al.
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SBA COVID-19 EIDL Financial Relief: Policy Options and Considerations

had already received an Emergency EIDL advance payment below the $10,000 maximum, and
second priority to eligible first-time applicants located in low-income communities.
On January 1, 2022, SBA stopped accepting applications for new COVID EIDLs or advances,
and as of May 6, 2022, SBA exhausted COVID EIDL funds and stopped accepting requests for
COVID EIDL increases. SBA has now pivoted to receiving COVID EIDL payments. As
described later in this report, SBA provided for the deferment of COVID EIDL to provide
borrowers financial relief. However, some businesses and nonprofit organizations are still
struggling to make COVID EIDL payments. Congressional concern about COVID EIDL hardship
has prompted some to investigate potential policies that would provide financial relief to
businesses and nonprofit organizations (hereinafter “applicants” or “borrowers”) including lower
interest rates, loan forgiveness, and extended repayment deferrals that do not accrue interest.
This report begins with a discussion about indications of SBA COVID EIDL hardship followed
by an overview of the SBA EIDL and a description of SBA COVID EIDL maximum loan
amounts and deferral policies. The report then discusses potential policy options that may provide
COVID EIDL borrowers financial relief. The report concludes with a discussion about the
potential drawbacks associated with providing COVID EIDL borrowers with financial relief.
Indications of SBA COVID EIDL Hardship
Establishing the extent to which borrowers struggle to repay SBA COVID EIDLs is difficult and
most reports of hardship have been anecdotal.3 Nevertheless, one potential indicator of hardship
is the number of loans that have defaulted. SBA refers to a defaulted loan as a “charge off.” SBA
defines charge off as “the process by which SBA recognizes a loss and removes the uncollectible
loan account from its active receivable accounts.”4 SBA’s annual charge off rate is the cumulative
principal balance charged off as a percentage of the total principal disbursed. This rate is
expressed by the year of loan approval (referred to as a cohort). The cohort for SBA COVID
EIDL is too young to determine aggregate charge offs because they were so recently issued.
Further, on March 15, 2022, SBA extended the deferral period for all COVID EIDLs approved in
calendar years 2020-2022, to 30 months from the date of the note (interest will continue to
accrue).5 For example, a 30-month deferral period for a COVID EIDL issued in December 2022
would extend deferred payments through June 2025. The extended deferral period may create
additional difficulty when trying to calculate the loan charge off rate.

3 There have been news reports that SBA COVID EIDL accrued interest is cost prohibitive to some businesses, and
some business owners have complained that EIDL payments are not going toward the loan principal. See “‘This is the
last thing we need:’ Millions of businesses hammered by the pandemic need to start paying back Covid loan,” CNN
Business, January 13, 2023.
4 Small Business Administration, SBA Charge Off Procedures Summary and Suggested Wrap-Up Report,
https://www.sba.gov/sites/default/files/bank_wrapup_report.pdf.
5 SBA, “SBA Administrator Guzman Announces Key Policy Change: Existing COVID Economic Injury Disaster Loan
Program Borrowers to Receive an Additional Deferment,” March 15, 2022, https://www.sba.gov/article/2022/mar/15/
sba-administrator-guzman-announces-key-policy-change-existing-covid-economic-injury-disaster-loan.
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SBA COVID-19 EIDL Financial Relief: Policy Options and Considerations

SBA EIDLs are subject to a higher charge off rate than some
Credit Elsewhere
other types of loans because EIDLs are only made to borrowers
unable to get credit elsewhere. The charge off rate for SBA
The Small Business Act defines
the term “credit elsewhere” for
business disaster loans (including physical disaster loans to
disaster loan purposes as “the
repair and rebuild structures, as well as EIDLs) generally ranges
availability of credit on
from 1% to 9% depending on economic conditions. Unless the
reasonable terms and conditions
debt has been discharged in bankruptcy, borrowers who default
from non-Federal sources taking
are still responsible for repaying loans even if their business
into consideration the prevailing
rates and terms in the
closes.
community in or near where the
Survey data can also help assess recent hardship for business
applicant business concern
transacts business, or the
owners generally. A report issued by the National Federation of
applicant homeowner resides, for
Independent Business found that most small business owners
similar purposes and periods of
reported that, as of December 2022, their local economy
time.”
remained below pre-pandemic levels of economic activity.6 The
15 U.S.C. §632(h)(2)
report also found that 36% of small businesses were at or
exceeded pre-pandemic sales levels.7 The survey did not include data on business closures.
SBA EIDL Overview
SBA EIDL is a longstanding disaster loan authorized by Section 7(b) of the Small Business Act.
SBA has provided disaster loans under Section 7(b) since 1953. SBA EIDLs are direct loans and
provide up to $2 million for working capital including fixed debts, payroll, accounts payable, and
other bills that cannot be paid because of the disaster’s impact.8 SBA EIDLs help eligible small
businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most
types of nonprofit organizations meet their financial obligations and operating expenses that
cannot be met as a direct result of the disaster.9
SBA EIDL amounts are based on actual economic injury and financial needs, regardless of
whether the business or eligible nonprofit suffered any property damage. If an applicant is a
major source of employment, SBA may waive the $2 million statutory loan limit.10 In addition,
EIDL proceeds cannot be used to refinance long-term debt, expand facilities, pay dividends or
bonuses, or for relocation expenses.11
To be eligible for EIDL, applicants must have a credit history acceptable to SBA, the ability to
repay the loan, and present collateral for all SBA EIDL over $25,000 if available. SBA

6 National Federation of Independent Business, COVID-19 Small Business Survey (23), December 8, 2022, p. 2,
https://assets.nfib.com/nfibcom/Covid-Survey-23.pdf.
7 Ibid.
8 Due to unprecedented demand, in March 2020, SBA lowered the maximum COVID-19 EIDL amount from $2 million
to $500,000, and, on May 3, 2020, reduced it to $150,000. On April 6, 2021, SBA increased the maximum COVID-19
EIDL to $500,000. On September 9, 2021, SBA increased the EIDL borrowing limit to $2 million from $500,000
(effective October 8, 2021).
9 SBA, “Fact Sheet—Economic Injury Disaster Loans, California Declaration #16332,” March 19, 2020, at
https://disasterloan.sba.gov/ela/Declarations/DeclarationDetails?declNumber=3485&direct=false (hereinafter cited as
SBA, “Fact Sheet”).
10 Ibid.
11 For the full list of ineligible uses of EIDL loan proceeds, see SBA, “Disaster Assistance Program SOP,” pp. 75-76.
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SBA COVID-19 EIDL Financial Relief: Policy Options and Considerations

collateralizes real estate or other assets when available, but it will not deny a loan for lack of
collateral.12
SBA EIDL interest rates are determined by formulas established in law (discussed later) and are
fixed for the life of the loan. EIDL interest rate ceilings are statutorily set at no more than 4% per
annum. EIDL applicants are not eligible if SBA determines that the applicant has credit available
elsewhere.
SBA EIDL can have maturities up to 30 years. SBA determines an appropriate installment
payment based on each borrower’s financial condition, which, in turn, determines the loan term.13
There are no prepayment penalties.
In response to the COVID-19 pandemic and an increase in demand for EIDL, the CARES Act
addressed anticipated delays in EIDL application loan processing by authorizing the SBA
Administrator to:
 waive the “credit not available elsewhere” requirement;
 approve an applicant based solely on their credit score;
 waive any rules related to the personal guarantee on advances and loans of not
more than $200,000; and
 waive the requirement that the applicant needs to be in business for the one-year
period before the disaster declaration (except that no waiver may be made for a
business that was not in operation on January 31, 2020).
COVID EIDL Maximum Loan Amounts and Program Termination
The maximum loan amount for COVID EIDLs has fluctuated since the program started due to
budgetary concerns. Some key maximum limit changes include:
 on May 3, 2020, SBA reduced the maximum loan amount for a COVID EIDL to
$150,000;
 on March 24, 2021, SBA increased the maximum loan amount from $150,000 to
$500,000 (effective as of April 6, 2021);14 and
 on September 9, 2021, SBA increased the COVID EIDL maximum loan amount
from $500,000 to $2 million (effective as of October 8, 2021).15
On January 1, 2022, SBA stopped accepting applications for new COVID EIDL loans or
advances. As of May 6, 2022, SBA’s COVID EIDL funds were exhausted and SBA stopped
accepting COVID EIDL loan increase requests or requests for reconsideration. SBA closed the
online COVID EIDL application portal on May 16, 2022.

12 SBA, “Fact Sheet.”
13 Ibid.
14 SBA, “SBA to Increase Lending Limit for COVID-19 Economic Injury Disaster Loans,” March 24, 2021, at
https://www.sba.gov/article/2021/mar/24/sba-increase-lending-limit-covid-19-economic-injury-disaster-loans.
15 SBA, “SBA Administrator Guzman Enhances COVID Economic Injury Disaster Loan Program to Aid Small
Businesses Facing Challenges from Delta Variant,” September 9, 2021, at https://www.sba.gov/article/2021/sep/09/
sba-administrator-guzman-enhances-covid-economic-injury-disaster-loan-program-aid-small-businesses; and SBA,
“SBA Administrator Guzman Announces Key Policy Change: Existing COVID Economic Injury Disaster Loan
Program Borrowers to Receive an Additional Deferment,” March 15, 2022, at https://www.sba.gov/article/2022/mar/
15/sba-administrator-guzman-announces-key-policy-change-existing-covid-economic-injury-disaster-loan.
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SBA COVID-19 EIDL Financial Relief: Policy Options and Considerations

At the time of this report’s publication, SBA had approved over 3.9 million EIDL loans totaling
over $378.4 billion; disbursed 5,781,390 EIDL advances (grants) totaling $20 billion; disbursed
601,058 Targeted EIDL Advance payment (grants) totaling over $5.2 billion; and disbursed
453,417 Supplemental Targeted EIDL Advance payment (grants) totaling over $2.3 billion.16
Figure 1 presents the total number of loans or advances provided by SBA, as well as the total
amount of money provided by SBA for each type of loan or advance.
Figure 1. COVID-19 EIDLs and Related Grants, Dollar Amount and Number
Disbursed

Source: SBA, “Disaster Assistance Update Nationwide COVID EIDL, Targeted EIDL Advances, Supplemental
Targeted Advances, April 28, 2022 (figures as of April 27, 2022),” https://www.sba.gov/document/report-covid-
19-eidl-reports-2022; SBA, “Disaster Assistance Updated (figures as of July 15, 2020),” https://www.sba.gov/sites/
default/files/2021-02/EIDL%20COVID-19%20Advance%207.15.20-508.pdf.
Deferred COVID EIDL Repayments
Under present law and regulations, the first payment on an SBA EIDL is normally due five
months after disbursement. However, on March 23, 2020, SBA announced that it would defer
payments on existing disaster loans through December 31, 2020, “to help borrowers during this
unprecedented time.” SBA also announced that payments on new EIDLs would be deferred for
one year (although interest would continue to accrue).17

16 SBA, “Disaster Assistance Update Nationwide COVID EIDL, Targeted EIDL Advances, Supplemental Targeted
Advances, April 28, 2022 (figures as of April 27, 2022),” https://www.sba.gov/document/report-covid-19-eidl-reports-
2022.
17 SBA, “Carranza Implements Automatic Deferment on Existing SBA Disaster Loans Through End of 2020,” March
23, 2020, https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/carranza-implements-
automatic-deferment-existing-sba-disaster-loans-through-end-2020.
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SBA COVID-19 EIDL Financial Relief: Policy Options and Considerations

On March 12, 2021, SBA extended the deferment period for all COVID-19-related EIDL and
other disaster loans until 2022. Specifically, all disaster loans made in calendar year 2020 had a
first payment due date extended from 12 months to 24 months from the date of the note, and all
disaster loans made in calendar year 2021 had a first payment due date extended from 12 months
to 18 months from the date of the note.18
On September 9, 2021, SBA announced the deferral of COVID EIDL payments for 24 months
after loan origination to help small businesses “get through the pandemic without having to worry
about making ends meet.”19 Additionally, on March 15, 2022, SBA extended the deferral period
for all COVID-19 EIDL approved in calendar years 2020-2022 to 30 months from the date of the
note (interest continues to accrue).20
SBA Hardship Accommodation Plan
SBA offers a Hardship Accommodation Plan for borrowers experiencing short-term financial
challenges. The plan allows eligible borrowers to make reduced payments for six months. Interest
on the loan continues to accrue, which may increase, or create, a balloon payment that is due at
the end of the loan term. Borrowers are eligible to enroll in the Hardship Accommodation Plan
beginning 60 calendar days before their first payment due date.21 The loan terms for the Hardship
Accommodation Plan are as follows:
 borrowers are required to pay at least 10% of their monthly payment amount for
six months;
 during the Hardship Accommodation period, borrowers can voluntarily make
larger payments;
 the regular monthly payment amount will resume and will be required after the
six-month accommodation period ends; and
 if necessary, borrowers may be able to renew the Hardship Accommodation
Plan.22
SBA COVID EIDL Financial Relief Policy Options
Congress may consider various policy options to provide SBA COVID EIDL borrowers financial
relief including loan forgiveness, loan deferments, and reduced interest rates. In addition,
Congress may also consider establishing a grant program to help businesses that are having
difficulty repaying their COVID EIDL.
If Congress investigates financial relief policy options, it could consider whether all COVID
EIDL borrowers should be eligible for assistance. Congress may also consider establishing certain

18 SBA, “SBA Extends Deferment Period for all COVID-19 EIDL and Other Disaster Loans until 2022,” March 12,
2021.
19 SBA, “SBA Administrator Guzman Enhances COVID Economic Injury Disaster Loan Program to Aid Small
Businesses Facing Challenges from Delta Variant,” September 9, 2021, https://www.sba.gov/article/2021/sep/09/sba-
administrator-guzman-enhances-covid-economic-injury-disaster-loan-program-aid-small-businesses.
20 SBA, “SBA Administrator Guzman Announces Key Policy Change: Existing COVID Economic Injury Disaster
Loan Program Borrowers to Receive an Additional Deferment,” March 15, 2022, https://www.sba.gov/article/2022/
mar/15/sba-administrator-guzman-announces-key-policy-change-existing-covid-economic-injury-disaster-loan.
21 U.S. Small Business Administration, Manage your EIDL, https://www.sba.gov/funding-programs/loans/covid-19-
relief-options/covid-19-economic-injury-disaster-loan/manage-your-eidl.
22 Ibid.
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eligibility requirements for financial relief. Both approaches, however, could be problematic. For
example, while providing blanket relief to all borrowers may be expedient, it may provide relief
to borrowers who are not struggling and are capable of repaying their EIDL in full. Eligibility
criteria may help identify businesses in need of financial relief, but some businesses could default
on their loan or shutter before getting the relief due to the time required to review applications
and process relief determinations.
As will be discussed later in this report, SBA relies on disaster loan repayments to help fund the
program. Relief policies could have a significant financial impact on the agency under its current
funding model, particularly given the high volume of COVID EIDLs.
Loan Forgiveness
Since it began providing disaster assistance to businesses in the 1930s, Congress, while
sympathetic to struggling businesses, has limited federal disaster assistance to loans rather than
offering grants. Disaster loan forgiveness has been rare. Generally, loans made by or guaranteed
by SBA are expected to be fully repaid with interest. SBA’s funding role is intended to assist
borrowers where private financing is insufficient or unavailable, for example, due to the borrower
being deemed too risky for private loans. As aforementioned, SBA business disaster assistance is
usually limited to small businesses that cannot otherwise receive credit in the private market at
reasonable terms and conditions.23 Therefore, SBA disaster loans are considered a last resort for
businesses seeking disaster assistance.
In the history of SBA disaster financing, there have been two cases of widespread forgiveness of
loans to respond to a disaster: (1) disaster loans responding to Hurricane Betsy in 1965; and (2)
the PPP responding to the COVID-19 pandemic.
Hurricane Betsy Disaster Loan Forgiveness
President Lyndon B. Johnson signed the Southeast Hurricane Disaster Relief Act of 1965.24
Section 3 of the act authorized the SBA Administrator to grant disaster loan forgiveness (or issue
waivers) for property lost or damaged by Hurricane Betsy in Florida, Louisiana, and Mississippi.
The act gave the borrower the option of canceling up to $1,800 of the loan, or waiving the interest
due on the loan in a total amount of not more than $1,800 over a period not to exceed three
years.25
Paycheck Protection Program Loan Forgiveness
Paycheck Protection Program (PPP) loans were eligible for forgiveness depending upon how the
proceeds from the loan were used and if the borrower maintained the same number of employees
and wage levels.26 Payroll (at least 60% of the loan proceeds) and other covered expenses (such
as mortgage interest, rent, and utility payments; up to 40% of the loan proceeds) could count
toward PPP loan forgiveness if paid during the loan’s 8- to 24-week covered period. To be
eligible for full forgiveness, a borrower generally needed to retain employees and maintain salary
and wages (or qualify for an exemption to the employment and pay maintenance requirement).27

23 For business loans, see 15 U.S.C. §636(a)(1)(A). For business disaster loans, see 15 U.S.C. §636(b)(2).
24 P.L. 89-339, 79 Stat. 1301.
25 Ibid. CRS could not locate a total value of loan forgiveness provided or waived for Hurricane Betsy.
26 An overview of PPP is provided in the Appendix A of this report.
27 15 U.S.C. §636m(d). The borrower could choose from several methods of determining base employment: (1)
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SBA COVID-19 EIDL Financial Relief: Policy Options and Considerations

As of October 23, 2022, SBA guaranteed over 11.3 million PPP loans for about $785.8 billion. By
that date, SBA had provided full or partial forgiveness to 10.5 million loans (93% of the total) for
$755.7 billion (96% of the total).28
Loan forgiveness for COVID EIDL could take many forms, including forgiveness of a set amount
(as was offered after Hurricane Betsy), for a specified period of time (as with PPP), or of a
percentage of the loan. Further, borrowers could be required to meet certain criteria to be eligible
for loan forgiveness, such as purchasing disruption insurance, or, similar to PPP, agreeing to
retain employees on the payroll for a specified amount of time.
Loan Deferments
As noted, SBA has administratively provided payment deferrals for COVID EIDLs, allowing
interest to accrue during the deferment. Congress could establish long-term COVID EIDL
deferrals, with or without accrued interest. For example, Congress could legislatively defer
COVID EIDL repayment for five years without accrued interest. A potential benefit of this policy
option is that it provides borrowers time to resume regular operations before making loan
payments. Additionally, it may be less burdensome to the SBA Disaster Loan Account than loan
forgiveness because borrowers would eventually repay COVID EIDL.
Grant Assistance
As noted, Congress has limited federal disaster assistance to businesses recovering from disasters
to loans. However, some federal agencies, including the Federal Emergency Management
Agency, provide grants to individuals, certain nonprofits, and state, local, tribal, and territorial
governments following a disaster. Congress could consider administering the COVID EIDL—or
any future disaster assistance to businesses—as a grant program. The SBA could administer the
grant program or Congress could authorize another federal agency to do it.
Grant and loan programs are administered notably differently. Grant administration can take more
time and resources than loan administration. This is because grants generally have more stringent
requirements than loans. For example, grants sometimes have narrower eligibility requirements
than loans, have greater reporting requirements, and are subject to more post-award reporting
requirements.29

February 15, 2019, through June 30, 2019; (2) January 1, 2020, through February 29, 2020; or (3) for seasonal
employers, any consecutive 12-week period between February 15, 2019, and February 15, 2020. Any forgiveness
amount would be reduced proportionally to the reduction in full-time equivalent employees. A salary or wage reduction
is calculated on an employee-by-employee basis, comparing each employee’s salary or wages with that employee’s
salary or wages during the most recent full quarter in which the employee was employed that was before the covered
period. Any salary or wage reduction in excess of 25% would cause a dollar-for-dollar decrease in forgiveness. There
were certain exemptions to facing any applicable reduction in forgiveness: (1) the employer offered to restore employee
hours at the same pay, regardless of whether the employee accepted; (2) the employee was fired for cause or the
employee voluntarily separated; (3) the employer eliminated reductions by December 31, 2020, or, for later PPP loans,
by the last day of the loans covered period, or; (4) the PPP loan is for $50,000 or less. Over three-quarters (78%) of
PPP loans were for $50,000 or less, so most PPP borrowers were exempt from the employment and pay maintenance
requirements. See Small Business Administration, “Business Loan Program Temporary Changes; Paycheck Protection
Program—Loan Forgiveness Requirements and Loan Review Procedures as Amended by Economic Aid Act,” 86
Federal Register 8283, February 5, 2021, https://www.federalregister.gov/d/2021-02314.
28 Small Business Administration, “Forgiveness Platform Lender Submission Metrics: October 23,” as of October 23,
2022, https://www.sba.gov/sites/default/files/2022-10/2022.10.24_Weekly%20Forgiveness%20Report_Public.pdf.
29 For more information on federal grants, see CRS Report R42769, Federal Grants-in-Aid Administration: A Primer,
by Natalie Keegan.
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As a result, providing disaster assistance to businesses as grants rather than loans would involve a
few tradeoffs. For example, Congress could establish an entity to scrutinize grant applicants to
ensure they are qualified to receive the relief. This would align the initiative with typical federal
grant programs, which generally have more stringent eligibility requirements than loan programs.
Establishing such an entity could result in greater transparency and reduce waste, fraud, and
abuse; conversely, it may increase the amount of time it takes to get funds to businesses in need.
Using grants rather than loans to provide disaster relief to businesses may also affect the federal
government’s costs. With loans, there is generally an expectation of repayment, particularly with
loans such as COVID EIDLs that do not offer forgiveness. Grant recipients, however, do not
return any of the funds.
Partly because the federal government expects repayment on its loans, loans generally have fewer
restrictions on use than do grants. If the federal government were to provide disaster assistance to
businesses as grants, those funds would likely have more restrictions on use. Again, this could
enhance federal oversight and reduce waste, fraud, and abuse. It could also reduce the ways
businesses could use the assistance, which may hinder their recovery. Businesses may end up in a
situation where they have to repay grant funds because they were misspent (either mistakenly or
intentionally).
SBA COVID EIDL Interest Rates
SBA is not authorized to charge fees to disaster loan borrowers; and SBA’s disaster loans are not
underwritten to fully account for default risk. The program’s interest rates are determined by
statutory formulas that generally require SBA to charge below-market interest rates. As a result,
the SBA Disaster Loan Program does not generate rates of return through loan principal and
interest repayments that fully cover the program’s cost. The program thus relies on supplemental
appropriations to make up the difference.
As mentioned, organizations that qualify for SBA EIDL are unable to secure credit elsewhere. By
law, the borrower’s interest rate for EIDL is not to exceed 4% per annum.30 As previously noted,
COVID EIDLs have an interest rate of 3.75% for small businesses and 2.75% for nonprofit
organizations. Because the Small Business Act establishes a ceiling on EIDL interest rates, but
not a floor, some may argue SBA has the administrative authority to lower the interest rate for
COVID EIDLs. Because demand for COVID EIDLs was significant, SBA may be reluctant to
lower interest rates if interest payments help cover the program’s costs.
Congress could consider providing borrowers financial relief by enacting legislation to lower
COVID EIDL interest rates. In so doing, Congress could consider a number of approaches,
including:
 lowering interest on the loan origination date;
 lowering interest on the date the bill is enacted;
 lowering the interest rate retroactively (for example, 90 days prior to the bill
enactment date); and
 lowering and/or waiving interest during deferral periods.
As discussed, SBA does not charge loan fees and relies on loan interest to help cover the cost of
administering the SBA Disaster Loan Program. Congress may therefore consider appropriating
additional funds to the SBA Disaster Loan Account if there is concern that lower interest rates

30 15 U.S.C. §636(d)(5)(C).
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might compromise SBA’s ability to cover the costs of administering the disaster loan program
(see “Funding the SBA Disaster Loan ”).
Financial Relief Considerations
The following section discusses additional considerations related to providing COVID EIDL
borrowers with financial relief. These include the costs to the federal government, moral hazard
concerns, and potentially redundant relief efforts.
Congress designed EIDL as a disaster loan made available to businesses that cannot obtain a loan
in the private market. As noted earlier, because the EIDL interest rate is determined according to
statute, borrowers receive at- or below-market interest rates for loans that do not undergo
traditional underwriting for default risk and are not secured by collateral. Consequently, EIDLs
are arguably underpriced for risk.31 Evidence that elevated levels of default risk may be
underpriced can be observed by comparing EIDL subsidy rates to other SBA credit program
subsidy rates.
Definition of Subsidy Rate
A subsidy rate is the net long-term cost to the federal government to guarantee (or directly make) loans,
expressed as a percentage of the total outstanding loan balance. Specifically, the net long-term cost is computed as
the present value of the estimated cash outflows (paid by the government to reimburse lenders for loan defaults)
minus the present value of the estimated cash inflows generated by the loans (payments and fees col ected from
borrowers and lenders).32 The estimates used to calculate cash outflows and inflows rely upon assumptions about
SBA’s future loan performance and recovery rates, which are formulated using its historical data.33 Next, the net
long-term cost is divided by the aggregate unpaid principal loan balance, resulting in the subsidy rate. SBA
computes subsidy rates for each of its credit programs. If a subsidy rate is negative, then the cash inflows are
greater than outflows. Stated differently, the compensation generated by a credit program exceeds its anticipated
losses. Conversely, if a subsidy rate is positive, then cash outflows from the government exceeds inflows, resulting
in losses. In this case, an appropriation from Congress, as prescribed by the Federal Credit Reform Act of 1990
(P.L. 101-508), would be required before SBA could continue operating the particular credit program.34
Figure 2 shows the subsidy rates for various SBA credit programs. As seen below, the SBA
Disaster Loan Program has the highest credit subsidy rate among the agency’s loan programs.35

31 In finance, U.S. Treasury bond rates are referred to as risk-free rates because the federal government, unlike other
borrowers, lacks financial risks such as default risk, the risk that a debt obligation will not be repaid on time or at all. At
times when a comparable 30-year Treasury bond yield falls below the statutory EIDL interest rates (particularly for
borrowers unable to get credit elsewhere), it may be unclear whether the federal government receives sufficient
compensation for assuming elevated levels of default risk. At times when a comparable 30-year Treasury bond yield is
above the statutory EIDL interest rate, the federal government receives no supplementary compensation for assuming
elevated levels of default risk.
32 The SBA Disaster Loan program subsidy rates include underlying assumptions about defaults, net of recoveries as
well as losses associated with below-market interest rates. See “Table 3. Direct Loans: Assumptions Underlying the
2023 Subsidy Estimates,” Office of Management and Budget, Credit Supplement: Budget of the U.S. Government,
FY2024, p. 12, https://www.whitehouse.gov/wp-content/uploads/2023/03/cr_supp_fy2024.pdf.
33 U.S. Government Accountability Office, Small Business Loans: SBA Generally Incorporated Key Elements for
Estimating Subsidy Costs of 7(a) Program, GAO-20-618, September 2020, pp. 1-41, http://www.gao.gov/assets/gao-
20-618.pdf.
34 See U.S. Government Accountability Office, Credit Reform: Transparency Needed for Evaluation of Potential
Federal Involvement in Projects Seeking Loans, GAO-22-105280, July 28, 2022, p. 7, https://www.gao.gov/assets/gao-
22-105280.pdf.
35 As previously mentioned in this report, the SBA Disaster Loan Program has four major lending programs:(1) Real
Property Disaster Loans for households; (2) Personal Property Disaster Loans for households; (3) Physical Disaster
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The subsidy rates for SBA’s loan guarantee programs (e.g., 7(a), 504, and SBIC) have recently
remained close to 0%, meaning that their cash inflows and outflows have been approximately
equal over this period.36 Lenders who participate in guarantee programs share various percentages
of the credit risk with SBA, thus giving them an incentive to carefully scrutinize prospective
borrowers. By contrast, the subsidy rates for the SBA’s Disaster Loan Program are higher.37
Given that the statutory loan pricing methodology generally does not allow for the incorporation
of elevated default risk levels, the cash inflows (i.e., loan repayments) generated from EIDL
would not be expected to cover its cash outflows (i.e., funds lent to borrowers).
Figure 2. Credit Subsidy Rates for Selected SBA Programs
FY2015-FY2023

Source: SBA, “Agency Financial Report,” https://www.sba.gov/document/report-agency-financial-report. The
subsidy rate for SBA’s Disaster Loan program between FY2015 and FY2020 was at or above 12%. The subsidy
rate during 2021 was 8.9% for the period October 1, 2020 to September 7, 2021 and was 9.2% for the period
September 8, 2021 to September 30, 2021. The report did not explain why the subsidy rate dropped to 9.2%.
Notes: This chart does not include the positive credit subsidy associated with the Paycheck Protection Program,
which is large and would cause distorting scaling effects.

Business Loans for businesses of all sizes, often called Business Physical Disaster loans; and (4) Economic Injury
Disaster Loans (EIDLs) for small businesses and private nonprofit organizations.
36 Although SBA has computed subsidy rates for previous years, producing a continuous trend over a longer time
period is challenging due to extenuating circumstances. For example, some credit programs reported separate subsidy
rates for sub-programs as opposed to a single aggregate subsidy rate. For this reason, adding or averaging subsidy rates
may give misleading results.
37 The subsidy rate for SBA administers the Microloan Program and Paycheck Protection Program (PPP). Although the
loans may reside on the balance sheets of private lenders, SBA holds all of the default risk. See Sriya Anbil, Mark
Carlson, and Mary-Frances Styczynski, The Effect of the PPPLF on PPP Lending by Commercial Banks, Board of
Governors of the Federal Reserve System, Finance and Economics Discussion Series 2021-030, April 20, 2021,
https://www.federalreserve.gov/econres/feds/files/2021030pap.pdf. Prior to the COVID-19 pandemic and introduction
of the PPP program, the EIDL subsidy rates were the highest compared to all other SBA programs.
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SBA reports that the positive credit subsidy (due to program losses) associated with EIDL
consists of approximately $8.5 billion of funds dispersed without proper verification of eligibility
using official tax information, as well as approximately $92 million dispersed to businesses with
suspect taxpayer identification numbers.38
Based on the above, it should be noted that wide-ranging forms of financial relief may complicate
the ability to retrieve misallocated funds. Furthermore, greater repayment of loans by borrowers
reduces costs that otherwise would ultimately be borne by taxpayers.
Funding the SBA Disaster Loan Account
If Congress provides financial relief to COVID EIDL borrowers, it may consider appropriating
funds to the SBA Disaster Loan Account, which is used to fund SBA disaster loans. The SBA
Disaster Loan Account is a “no year” account, meaning that funding does not lapse at the end of
the fiscal year. Rather, any remaining funds are rolled over to the next fiscal year. The SBA
Disaster Loan Account receives disaster loan repayments (including interest on the loans), as well
as annual and supplemental appropriations.
These revenue streams service current disaster loans (as funding comes into the account, SBA
disaster loans are paid to borrowers as installments) and maintain a funding surplus for future
disasters. Because the demand for COVID EIDL was significant, providing loan forgiveness to
borrowers, reducing loan interest rates, or both, may compromise SBA’s disaster loan authority.
If Congress provides borrowers financial relief, it may consider appropriating funds to the SBA
Disaster Loan Account to ensure future borrowers can still access the program when disasters
occur.
Moral Hazard
In economics, public finance, insurance, and other policy arenas, moral hazard behavior refers to
someone who does not bear the full costs associated with a bad outcome, and also lacks incentive
to mitigate any risk of a bad outcome. For example, someone may avoid incurring the cost of
purchasing insurance as protection against a financial loss if another person or entity is already
anticipated to bear the cost. If the federal government significantly reduces the financial
obligations of numerous COVID EIDL recipients, other EIDL borrowers may stop paying their
loans, as they may believe that their loans may also be forgiven. Additionally, the incentive for
individuals to purchase private insurance for various other types of future contingencies (e.g.,
flood insurance) arguably diminishes.
Such an increase in moral hazard behavior by private individuals would likely translate into lost
business activity for private insurance firms, resulting in smaller pools of private funds for costly
disasters, and higher contingent liabilities for taxpayers. For these reasons, opponents of financial
relief for borrowers may be concerned that some businesses would avoid purchasing insurance.
Duplicative Financial Relief for a Single Incident
The federal government has provided significant financial relief to borrowers in response to the
pandemic. For instance, as noted:

38 See SBA Inspector General Inspection Report, Follow-Up Inspection of SBA’s Internal Controls to Prevent COVID-
19 EIDLs to Ineligible Applicants, Report Number 22-22, September 29, 2022, p. 2, https://www.sba.gov/document/
report-22-22-follow-inspection-sbas-internal-controls-prevent-covid-19-eidls-ineligible-applicants.
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 SBA approved 11.3 million PPP loans, totaling $785.8 billion, of which $755.7
billion has been forgiven;39
 SBA approved 601,058 Targeted EIDL Advance payment grants totaling over
$5.2 billion; and
 SBA approved 453,417 Supplemental Targeted EIDL Advance payment grants
totaling over $2.3 billion (see Figure 1).40
Based on the above, some may argue that providing additional financial assistance may duplicate
the relief provided in the form of forgiveness and advances. Others may note that additional
financial relief may be justified to protect the national economy.
Potential Competitive Advantages
Government assistance to businesses has the potential to create a competitive advantage for the
businesses that receive assistance over those that do not. The EIDL program attempts to balance
concerns about providing competitive advantages to businesses in several ways. First, the
provided loans must be repaid with interest. While the interest rate is below market rates, this
alone may not create a substantial advantage as EIDL borrowers receive funding to rebuild in
exchange for a portion of future cash flow. Second, EIDLs are generally available to any eligible
business that applies for one. SBA does not typically run out of authority for EIDLs and, when it
does, Congress often grants additional authority to make more EIDLs. Therefore, any eligible
business that wants an EIDL can usually receive one, creating a level playing field.
The balance within EIDL may shift if disaster assistance was provided as a forgivable loan or
grant. Receiving funds that do not need to be repaid may create a competitive advantage for
businesses who receive those funds relative to those who do not. A funded business receives
money to rebuild today and can maintain the same future cash flow as other businesses.
Additionally, applications for forgivable loans or grants may exceed amounts appropriated by
Congress for such a program. For example, SBA’s COVID-era Restaurant Revitalization Fund
(RRF) received an appropriation of $28.6 billion but received applications for over $76 billion
during the first several weeks of the application period.41 When a program is oversubscribed, the
program administrator needs to prioritize applications. Eligible businesses who do not receive
funding may end up at a competitive disadvantage due to the program administrator’s decisions
compared with businesses who do receive funding.
Relief Strategy Applications
If Congress were to provide financial relief to COVID EIDL borrowers, it may consider two
strategies: (1) establishing needs-based criteria for relief; and (2) blanket financial relief.
 Needs-Based Criteria: Congress may decide to establish criteria for financial
relief to help limit assistance to those that are struggling to pay their EIDL.
Defining or determining what constitutes “struggling” may be contentious.
Congress may decide to delegate this responsibility to SBA based on its expertise

39 U.S. Small Business Administration, Forgiveness Platform Lender Submission Metrics | October 23, October 23,
2021, https://www.sba.gov/sites/default/files/2022-10/2022.10.24_Weekly%20Forgiveness%20Report_Public.pdf.
40 SBA, “Disaster Assistance Update Nationwide COVID EIDL, Targeted EIDL Advances, Supplemental Targeted
Advances, April 28, 2022 (figures as of April 27, 2022),” at https://www.sba.gov/document/report-covid-19-eidl-
reports-2022.
41 See CRS In Focus IF11819, SBA Restaurant Revitalization Fund Grants, by Adam G. Levin.
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in developing needs-based criteria. The drawback to this approach, however, is
that SBA may establish criteria that do not align with the intent of Congress.
Another drawback is that verifying whether the business meets the criteria could
be time-consuming, raising concerns that businesses may fail before getting
assistance. Additionally, some may argue that EIDL borrowers are by definition
struggling because they cannot obtain credit elsewhere. If that is so, developing a
criteria for struggling would be redundant.
 Blanket Financial Relief: In contrast, Congress could provide blanket relief to
COVID EIDL borrowers. This policy option may be timelier and prevent delays.
The drawback to this policy option, however, is that businesses capable of
repaying their loans will receive financial assistance. Blanket financial relief may
therefore seem unfair to some. Another drawback is that this policy option may
cost the federal government more money compared to providing relief to
borrowers that meet certain eligibility requirements.
Implications of Expanding Financial Relief
As mentioned previously, Congress has historically provided disaster loans rather than grants to
businesses.42 For the first time, the CARES Act authorized advances for an incident deemed a
disaster, and loan forgiveness is rare.43 Some may argue that providing additional relief may
become normative and thus a deviation from the standard practice of offering loans rather than
grants. Because the SBA Disaster Loan Program provides assistance in response to hundreds of
declarations per year, the costs could become burdensome to the federal government if loan
forgiveness and other types of relief becomes accepted practice.
SBA Disaster Loans for other Natural Disasters
SBA provides a significant number of disaster loans to businesses, nonprofit organizations, and
households for a range of natural disasters. For example, from FY2018 to FY2022, there were
405 major disaster declarations under the Robert T. Stafford Disaster Relief and Emergency
Assistance Act (Stafford Act), and 508 EIDL declarations were issued for loans totaling $13.4
billion (see Table 1).
Table 1. SBA Disaster Loans in Response to Natural Disasters
FY2018 - FY2022
EIDL
Disaster Loan
Fiscal Year
Stafford Act Declarations
Declarations
Amounts
2018
111
134
$6,973,894,046
2019
131
157
$2,215,013,577
2020
123
151
$582,722,265
2021
114
126
$1,636,447,230
2022
129
150
$1,961,806,911
Grand Total
405
508
$13,369,884,029

42 See the historical discussion about disaster assistance to businesses in the Appendix B.
43 As noted in this report, loan forgiveness was provided in response to Hurricane Betsy in 1965 as well as the COVID-
19 pandemic.
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Source: Based on data provided by SBA.
Some may question why loan forgiveness and advances were provided for the COVID-19
pandemic, but not for other disasters. They may further argue that, if Congress considers
additional financial assistance for COVID EIDL borrowers, it should also provide it to borrowers
with loans associated with natural disasters. Others, however, may be concerned about the cost
implications of financial relief becoming an accepted practice for SBA disaster loans.
Concluding Observations
Throughout the years, Congress has expressed interest and concern for businesses recovering
from disasters. For nearly a century, the federal government’s policy for providing disaster
assistance to businesses has been limited primarily to low-interest loans rather than grant
assistance. Included in this policy is the provision of disaster loans to businesses and nonprofit
organizations unable to get loans in the private market.
Financial relief to businesses after disasters in the form of grants and loan forgiveness has been
rare. In the case of the COVID-19 pandemic, some would argue such financial relief was justified
due to the pandemic’s adverse economic impact on the national economy. Similarly, some may
argue that additional financial relief is needed to help businesses that are still struggling with the
long-term economic effects of the pandemic.
Conversely, though some may agree with the importance of small businesses to the national
economy, they may be concerned about the implications the financial relief could have on the
future of the SBA Disaster Loan Program. In particular, they may be concerned that grants,
advances, and loan forgiveness will increasingly become an accepted practice each time Congress
provides financial relief beyond the existing framework of the loan program.
COVID EIDLs have a 30-year repayment period and SBA has disbursed a significant amount of
COVID EIDLs, both in terms of number of loans and dollar amount. As such, the question of
financial relief for COVID EIDLs is likely to concern a large number of small businesses as well
as the solvency of the program and may be an area of congressional interest for the foreseeable
future.

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Appendix A. Overview of SBA Paycheck Protection
Program (PPP)
SBA administered a variety of programs to provide assistance to small businesses in response to
the economic injury caused by the COVID-19 pandemic. The largest, by dollar amount and
number of businesses assisted, was the PPP.
PPP, as authorized by the CARES Act, offered loans to eligible entities for the costs of
maintaining payroll (potentially to prevent mass unemployment due to the pandemic) and certain
other limited operating expenses. Congress structured PPP as a forgivable loan program from the
beginning. Congress appropriated funds for loan credit subsidies (in this case, this amounts to the
cost of loan forgiveness) when PPP was created and when PPP was significantly modified by the
Paycheck Protection Program and Health Care Enhancement Act (P.L. 116-139), the Economic
Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (part of P.L. 116-260), and the
American Rescue Plan Act of 2021 (P.L. 117-2).
To be eligible for a PPP loan, an entity needed to be a small business (including certain sole
proprietors, such as independent contractors) or one of certain types of other entities not generally
eligible for SBA business assistance, such as nonprofit organizations.44
SBA started accepting PPP applications on April 3, 2020, and stopped accepting applications on
May 31, 2021. Over several rounds of PPP loan applications, SBA guaranteed more than 11.3
million PPP loans, totaling over $785.8 billion.45 The maximum PPP loan was $10 million. The
average PPP loan was about $69,300. The majority of PPP loans (8.9 million, or 78%) were for
$50,000 or less.
SBA did not make PPP loans directly to businesses. PPP loans were made by third-party lenders
such as banks, credit unions, Small Business Lending Companies (SBLCs), microlenders, certain
financial technology firms, and other lenders approved to participate. SBA guaranteed 100% of a
PPP loan’s value, even a portion that may later be found to be ineligible for forgiveness.46
Lenders received a fee from SBA based on the number and size of loans that they originated.
Statutorily, Congress made PPP part of SBA’s 7(a) loan guarantee program. PPP shared some
features with the 7(a) program, such as SBA guaranteeing loans by private lenders to small
businesses. However, unlike PPP, there has not been widespread loan forgiveness in the 7(a)
program since it was created (along with SBA) by the Small Business Act (P.L. 83-163, the Small
Business Act of 1953, as amended). In contrast to PPP, the 7(a) program is generally self-
financing through the fees charged to lenders for SBA’s guarantee and due to low default rates
among 7(a) loans. However, during previous periods of economic recession—when it wanted to
promote 7(a) lending—Congress has authorized SBA fee waivers and has generally provided an
appropriation for the resulting loan credit subsidy.47

44 15 U.S.C. §636(a)(36)(D).
45 Small Business Administration, “Forgiveness Platform Lender Submission Metrics: October 23,” as of October 23,
2022, https://www.sba.gov/sites/default/files/2022-10/2022.10.24_Weekly%20Forgiveness%20Report_Public.pdf.
46 Information on PPP loan forgiveness is provided below, in the section on “Loan Forgiveness.”
47 For more information, see CRS Report R41146, Small Business Administration 7(a) Loan Guaranty Program, by
Robert Jay Dilger and Anthony A. Cilluffo.
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Appendix B. Federal Business Assistance:
Historical Developments
Historically, federal disaster assistance to businesses has been limited to loans rather than grants.
Some may question why grants are provided to individuals and households, state, local, and tribal
governments, and nonprofit organizations, among others, but not to businesses. A review of
congressional hearings, bill reports, agency reports, academic journals, and other authoritative
sources did not identify specific language articulating why Congress makes a distinction between
businesses and other sectors with respect to disaster assistance.
It appears that current federal policy on business disaster assistance first emerged in the 1930s. At
that time, the United States had no overarching federal disaster policy or permanent program in
place to respond to major disasters. Response, repair, and recovery activities were generally
organized and carried out under local auspices, and states, municipalities, churches, and other
nonprofit organizations such as the American Red Cross and the Salvation Army typically
provided financial assistance.48 When Congress did provide financial assistance, it was generally
on an ad hoc basis.49 Further, Congress wanted assistance measures limited to relieving “human
distress and for such things as food, clothing, shelter, medicine and hospitalization” rather than
the reconstruction of buildings, businesses, or anything else.50
The Great Depression also heightened concerns about federal costs. Thus, Congress sought to
keep expenditures to a minimum by limiting assistance to individuals and households, and, to the
extent possible, returning federal expenditures back to the Treasury.51
For example, in 1933, in response to an earthquake in Long Beach California, Congress debated
whether to provide funding to the American Red Cross (the main source of disaster assistance at
that time). The American Red Cross requested funding from Congress because it could not meet
the needs of disaster victims through traditional fundraising efforts. Businesses, which were
already struggling from the Great Depression, suffered a great deal of damage from the
earthquake. While sympathetic to the struggling businesses, Congress was resolute that federal
assistance for the earthquake be limited to immediate needs such as food and clothing. During a
hearing before the Subcommittee in Charge of Deficiency Appropriations, the Vice Chairman in
charge of Domestic Operations for the American Red Cross clarified that the Red Cross did not
have a role in business recovery:
There will always arise the question as to business rehabilitation, businesses and factories
that have been affected. Then, there is the question of the solvency or insolvency of public
corporations, schools, school boards, and so forth, and the replacement of their losses. For
that reason I made the statement at the outset delimiting the scope of Red Cross work to
family problems as against those of business and government.52

48 Rutherford H. Platt, Disasters and Democracy: The Politics of Extreme Natural Events (Washington DC: Island
Press, 1999), p. 1.
49 David Butler, “Focusing Events in the Early Twentieth Century: A Hurricane, Two Earthquakes, and a Pandemic,” in
Emergency Management: The American Experience 1900-2005, ed. Claire B. Rubin (Fairfax, VA: Public Entity Risk
Institute), p. 11.
50 U.S. Congress, House Committee on Appropriations, Subcommittee in Charge of Deficiency Appropriations,
California Earthquake Relief, 73rd Cong., 1st sess., March 15, 1933, S.L.Res. 14 (Washington: GPO, 1933), p. 15.
51 Ibid., p. 18.
52 Ibid., p. 6.
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Congress later decided to make disaster loans available to nonprofit organizations with loan
maturities not to exceed 10 years through the Reconstruction Finance Corporation (RFC).53
Congress removed the restriction that limited loans to nonprofit organizations in 1936, and RFC
was “authorized to make disaster loans to corporations, partnerships, individuals, and
municipalities or other political subdivisions of states and territories.”54 The RFC continued to
make disaster loans available until Congress dissolved the RFC and transferred its disaster loan
authority to SBA in 1953 (P.L. 83-163).
Around the same time, Congress passed the Federal Disaster Relief Act of 1950 (P.L. 81-875).
The Disaster Relief Act established a permanent authority that committed the federal government
to provide specific types of assistance to states and localities (but not businesses) following a
major disaster declaration. It appears that the creation of a separate authority to provide assistance
to states and localities may have placed them on a separate policy trajectory from businesses.
Though interlaced to a degree, assistance to businesses remained in the form of loans, while the
scope and nature of federal assistance to other entities expanded as the Disaster Relief Act was
amended in the 1960s, 1970s, and replaced in the 1980s by the Stafford Act.55
The response to COVID-19 marked a significant departure from the longstanding policy of loans
rather than grants and required a series of complicated policies to make grant assistance available
to businesses. First, Congress amended the definition of a disaster under the Small Business Act
(P.L. 83-163, the Small Business Act of 1953, as amended) to include a pandemic as a declarable
disaster.56 The addition removed any potential ambiguity that a pandemic or infectious disease
outbreak was a disaster. The CARES Act authorized the Paycheck Protection Program which
provided businesses with funds to pay up to eight weeks of payroll costs including benefits. The
funds could also be used to pay interest on mortgages, rent, and utilities. PPP loans made to
eligible borrowers qualified for full loan forgiveness if during the 8- to 24-week covered period
following loan disbursement:
 employee and compensation levels are maintained;
 the loan proceeds are spent on payroll costs and other eligible expenses; and
 at least 60% of the proceeds are spent on payroll costs.
The CARES Act also authorized Emergency EIDL grants limited to $1,000 per employee, up to a
maximum of $10,000.
P.L. 116-260, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act
(Division N, Title III of the Consolidated Appropriations Act of 2021), established the Targeted
Economic Injury Disaster Loan Advance (grant) program. The program provided a $10,000
advance payment to borrowers located in low-income communities that had suffered a revenue
loss greater than 30% over specified time periods and had no more than 300 employees.
P.L. 116-260 also established the Shuttered Venue Operators Grant (SVOG) program. The
program, administered by SBA’s Office of Disaster Assistance, provided grants directly to

53 P.L. 73-4. For a detailed history of the RFC see Secretary of the Treasury, Final Report on the Reconstruction
Finance Corporation, May 6, 1959.
54 Secretary of the Treasury, Final Report on the Reconstruction Finance Corporation, May 6, 1959, p. 112.
55 These laws were the Disaster Relief Act of 1966 (P.L. 89-796), the Disaster Relief Act of 1970 (P.L. 91-606), the
Disaster Relief Act of 1974 (P.L. 93-288), and the Robert T. Stafford Disaster Relief and Emergency Assistance Act of
1988 (P.L. 100-707).
56 P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act.
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SBA COVID-19 EIDL Financial Relief: Policy Options and Considerations

businesses with no more than 500 employees that offered live performances and that had
experienced at least a 25% revenue loss due to COVID-19. Among others, eligible applicants
Congressional Research Service

19

SBA COVID-19 EIDL Financial Relief: Policy Options and Considerations

included live venue operators or promoters, theatrical producers, live performing arts
organizations, and movie theater operators. The grants could be for up to $10 million, and could
be used for a variety of purposes, including payroll costs, rent or mortgage payments, and capital
expenditures.
SBA’s Restaurant Revitalization Fund (RRF), established by the American Rescue Plan Act of
2021 (P.L. 117-2), provided grants of up to $5 million directly to restaurants and similar
businesses that experienced COVID-19-related revenue loss. Unlike most SBA programs, the
grants were available to businesses of any size. To qualify, for-profit businesses may not have
owned or operated more than 20 locations. Like the SVOG program, RRF award recipients could
use the grants for a range of purposes, including payroll costs, rent or mortgage payments, and
construction of outdoor seating.

Author Information

Bruce R. Lindsay, Coordinator
Darryl E. Getter
Specialist in American National Government
Specialist in Financial Economics

Anthony A. Cilluffo
Adam G. Levin
Analyst in Public Finance
Analyst in Economic Development Policy

Acknowledgments
Maura Mullins, Research Librarian, Government and Finance Division, helped compile the data for this
report. Corinne Blackford, Analyst in Small Business and Economic Development Policy, Government and
Finance Division, and Julie Lawhorn, Analyst in Economic Development Policy, Government and Finance
Division, provided editorial review.

Disclaimer
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shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
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