SBA EIDL Loans (Economic Injury Disaster Loans)

Look at all options to determine the best path for your business

If your business can no longer pay an EIDL loan, you are not alone. Approximately 37% of loans are in default, liquidation or charge off.

Bankruptcy may relieve you of personal liability on an EIDL loan if you signed a personal guaranty. If your business continues to operate, you may want to consider reorganizing the debt through either a chapter 11 or chapter 13 debt reorganization and reducing the principal of the loan.

Below are frequently asked questions often asked when a business can’t afford loan payments any longer.

Am I personally liable on my business SBA EIDL loan?

Generally, the SBA waived personal guarantees on advances and loans under $200,000. However, if your business was a sole proprietorship, you may be personally liable on the loan because of the structure of the business.

Will I lose any business equipment or other business assets if I default on my EIDL loan?

Loans over $25,000: The SBA probably took a lien against all collateral of the business. Your business assets will need to be turned over to the SBA or sold with the permission of the SBA.

Loans over $200,000: If the assets of the business will not cover the loan in full, most likely the SBA required a personal guarantee. Your non-exempt personal assets will be at risk, as well as your tax refund and federal payments, such as social security or military retirement.

Will I lose my home if I default on an EIDL loan?

In Texas, liens against the homestead are limited. If the SBA takes a judgment against you individually on the personal guaranty, and then enrolls it in the land records, the SBA has the same rights as any other creditor as far as your home. The SBA can’t take your homestead at least while you are living. Once you pass away, your estate may or may not have to pay the judgment before your home can be sold depending on various circumstances at the time of your death.

What do I do if I can’t make my SBA EIDL loan payments?

Currently, the SBA is offering short-term payment assistance which permits a payment reduction of 50% of the monthly payment for 6 months. Interest continues to accrue. There are limitations on qualifying for this program.

What can the SBA do to collect on the EIDL loan?

The SBA can sue the business and you individually if there is a personal guarantee. If the SBA is successful in the lawsuit, a judgment will be entered.

Once a judgment is taken, the Department of Treasury can:

  • Seize funds in your bank account
  • Garnish up to 15% of your wages
  • Levy on non-exempt property
  • Enter your social into CAIRS system

The SBA has 20 years to enforce the judgment. The statute of limitations on SBA loans is generally 6 years. 28 USC 2415(a). The six year statute of limitations to sue begins to run upon default, or the date of the last payment. For loan fraud, the statute of limitations was extended to 10 years under the COVID-19 EIDL Fraud Statute of Limitations Act of 2022.

Administrative offset – The SBA may take additional collection action without suing for a judgment.

Even after the statute of limitations runs and without entering a judgment, SBA can pursue collection through administrative offset, taking actions such as:

  • Seizure of tax refunds (10 year limit)
  • Garnish most government benefits, including up to 15% of certain types of social security or military retirement pay
  • Garnish veterans benefits under limited circumstances (where veteran waived military retired pay to get VA disability)

Can an SBA EIDL loan be discharged in bankruptcy?

Liability on an EIDL may be discharged in bankruptcy by an individual if the loan was made to the individual as the owner of a sole proprietorship or if the individual personally guaranteed the loan for a business entity such as an LLC. Certain types of bankruptcy may also discharge the liability of the business entity in a business bankruptcy.

What if I used my SBA EIDL loan for unpermitted purposes?

The EIDL loan was required to be used for limited purposes including:

  • Working capital to make regular payments for operating expenses, including payroll, rent/mortgage, utilities, and other ordinary business expenses, and to pay business debt incurred at any time (past, present, or future)
  • Use of funds was expanded to include payment and pre-payment of business non-federal debt incurred at any time (past or future) and payment of federal debt

If your loan proceeds were used for other purposes, have an honest discussion with a bankruptcy attorney. Bankruptcy may not be your best option.

How do I handle my SBA EIDL loan if my business is no longer operating?

  • Communicate with the SBA
  • Written permission from the SBA is required for the sale or transfer of business assets out of the ordinary course of business
  • Preserve all records, especially a log and documentation of how the loan funds were spent.

Closing Your Business With an EIDL loan

Businesses can certainly cease operating and may be legally closed following state law procedures. However, if the business is closed with outstanding debt, Texas law may create personal liability on the part of the owner under certain circumstances. Consult with a knowledgeable attorney before winding down and closing your business. If funds are available, pay the SBA loan before paying member/owner/shareholder. Remember that closing the business will not relieve the business or you individually from liability on the EIDL loan.

Each situation is different. Reach out to us for a consultation to discuss options in your particular case.