How to Turn SBA Loan into a Grant

People turn their SBA loan into a grant because they want to receive financial assistance without having to repay the loan. A grant is a type of financial aid that does not need to be repaid, while an SBA loan must be repaid with interest.

Small businesses, especially those that suffered an economic injury due to events such as natural disasters or pandemics, may seek loan forgiveness or grant opportunities to help them recover. By turning the loan into a grant, they can use the funds to cover their expenses without incurring additional debt.

Another reason is that some SBA loans come with grant opportunities if the business meets certain criteria, such as participating in a specific program or demonstrating significant economic injury.

Steps to Turn an SBA Loan into a Grant

1. Show Significant Economic Injury

To qualify for loan forgiveness under the Economic Injury Disaster Loan (EIDL) program, businesses must show that they have suffered significant economic injury as a result of a declared disaster. If the business can demonstrate that it has suffered a substantial financial loss, it may be eligible for loan forgiveness.

Here are some steps to show significant economic injury:

• Gather documentation: Collect financial records, tax returns, bank statements, and any other relevant documentation that demonstrates the impact the disaster had on the business’s revenue and expenses.
• Calculate the financial loss: Use the documentation to calculate the difference between the business’s income before and after the disaster. This will help determine the extent of the financial loss suffered.
• Compare the financial loss to industry benchmarks: Show how the financial loss suffered by the business compares to the average loss experienced by businesses in the same industry. This will help demonstrate the significance of the financial injury.
• Provide a detailed explanation: Write a clear and concise explanation of the circumstances that led to the financial loss, including the specific impact of the disaster, and how the business has attempted to recover.
• Seek professional help: Work with an accountant or business attorney to help prepare the documentation and ensure that all requirements are met.

It is important to note that the SBA will consider multiple factors when evaluating an EIDL loan forgiveness application, including the business’s ability to repay the loan, the financial impact of the disaster, and the business’s efforts to recover.

2. Participate in a Grant Program

Some SBA loans may come with grant opportunities if the business meets certain criteria. For example, the SBA’s Restaurant Revitalization Fund provides grants to restaurants and other food-related businesses.

3. Apply for Loan Forgiveness

The SBA offers loan forgiveness for certain loans, including the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) Advance. To be eligible for loan forgiveness, businesses must have used the loan funds for eligible expenses such as payroll, rent, and utilities.

Here are the steps to apply for SBA loan forgiveness:

• Review eligibility criteria: Determine if your business is eligible for loan forgiveness by reviewing the requirements for the specific loan program, such as the Paycheck Protection Program (PPP) or the Economic Injury Disaster Loan (EIDL) Advance.
• Gather required documentation: Prepare documentation that demonstrates how the loan funds were used, such as invoices, receipts, and bank statements.
• Complete the loan forgiveness application: Submit the loan forgiveness application, along with the required documentation, to the lender that issued the loan.
• Wait for loan forgiveness decision: After submitting the loan forgiveness application, the lender will review the documentation and make a decision. The process can take several weeks, and the lender will notify the business of the decision.
• Provide additional information: If additional information is needed, the lender will request it. Be prepared to provide additional documentation as required.
• Seek professional help: Work with an accountant or business attorney to ensure that all requirements are met and to assist with the loan forgiveness application process.

4. Seek Assistance from the Local or State Government

Some local and state governments offer grant programs to help small businesses recover from disasters or other hardships. These grants may be used to pay off outstanding SBA loans.

It is important to note that turning an SBA loan into a grant is not a guarantee of forgiveness, and there are no guarantees that any of these options will be successful. However, these steps can help businesses explore their options and determine if they may be eligible for loan forgiveness or grant opportunities.

To ensure that you have the best chance of success, it is recommended that you work with a professional such as an accountant or business attorney to understand the requirements and eligibility criteria for each program. Additionally, be sure to keep detailed records of your expenses and be prepared to provide documentation to support your claims.