What Is a Hardship Loan?

From time to time, people encounter circumstances that make it difficult for them to meet their financial obligations. College tuition, medical bills, a natural disaster or extended unemployment can all take a toll on finances. If emergency savings or a temporary loan from a family member is not an option, it may be possible to apply for a hardship loan.

Different types of hardship loans exist for both business owners and individuals, with each carrying its own application criteria, fees and interest rates. In some instances you can also borrow against a retirement savings plan or get a low-interest government hardship loan. Most entities will request a detailed explanation of your hardship and information about what the money is intended for.


  • A hardship loan is a loan designed to help when meeting current financial obligations has become difficult.

401k Hardship Loans

The most common type of hardship loan involves borrowing against your own 401k savings plan. With this type of loan, you borrow money from yourself and pay yourself back with interest. To qualify for a hardship loan, you have to make a compelling, documented case that outlines what you need the money for and why you are unable to secure any other type of financial assistance.

Different retirement plans have different criteria for how much you can borrow, how long you will have to repay the loan and the interest rate the loan will carry. Loans that are not repaid can be subject to different tax penalties. There may be fees associated with withdrawal.

Employer Hardship Loans

Some companies provide hardship loans for employees in need. While policies vary from employer to employer, applicants must typically outline the specific elements of their hardship and describe what the money will be used for. In most cases, repayment of the loan is deducted in increments from the employee’s salary over a set time.

Generally, if an employee is terminated or leaves the company prior to the loan being repaid, the balance will be due in full unless other arrangements are made. A company’s human resources or finance department is the best source of information about employer loans for individual employees.

Business Disaster Loans

The U.S. Small Business Administration makes low-interest, long-term loans to qualified private businesses that face hardship related to natural disaster. These loans are typically granted for the purpose of repairing and rebuilding damaged buildings and replacing inventory, equipment and machinery. Eligible applicants must demonstrate an ability to recover from the hardship and repay the loan.

Farm Service Agency Loans

The government-funded Farm Service Agency makes hardship loans to qualified farmers and ranchers who are in financial need and are unable to secure a traditional bank loan. Loans can be used to purchase land or buildings or to promote conservation efforts.

Application requirements include good credit, no drug-related convictions and no previous federal loan discharges. The applicant must secure the loan with collateral and must demonstrate he has the means available to repay the loan installments.