SBA Economic Injury Disaster Loans (EIDLs) were a crucial lifeline for almost 4 million small businesses during the pandemic. However, as the loans are now coming due after nearly six years and multiple deferments, hundreds of thousands of borrowers are defaulting. This has caused panic among borrowers, as they wonder what will happen if they can’t pay, if they can close their business, or if the SBA will come after them personally.
Experts believe that many defaults were inevitable due to the quick issuance of COVID EIDLs with minimal underwriting and little consideration for future circumstances. Recovery for small businesses has been slow, and additional challenges like inflation, rising costs, and supply chain disruptions make it difficult to repay this debt.
This guide outlines the consequences of missing EIDL payments, available options, and how to protect oneself as the situation escalates. Missing payments leads to the loan being considered delinquent, followed by default after 120 days of nonpayment. The consequences of default include the loan being sent to the U.S. Department of the Treasury for collections, with a 30% collection fee added to the balance.
The Treasury can take various actions to collect repayment, such as garnishing wages, withholding tax refunds, withholding Social Security income, or filing a lawsuit. The level of liability for assets depends on the loan structure, with collateral and personal guarantees playing a significant role in determining the government’s ability to collect repayment.
Even if a business closes, the obligation to repay the EIDL remains, and the government may still attempt to collect from remaining assets or personal assets. It is crucial to follow the loan agreement’s specific steps when closing a business to avoid legal action for breach of contract.
If facing difficulties in making EIDL payments, it is essential to be proactive and reach out to the SBA to explore options and seek assistance. To contact the SBA, you can email them at [email protected] or send a message through the MySBA Loan Portal. When emailing the SBA, include your loan number and reason for your request in the subject line. In the body of the email, provide your loan number, reason for the request, business name, applicant name, and contact information.
For borrowers experiencing temporary financial difficulty with SBA EIDL payments, a short-term payment assistance plan may be available, reducing payments by up to 50% for six months. To qualify, ensure your loan is fewer than 90 days past due, have an active loan account, and provide an explanation of your temporary financial difficulty when submitting the request.
If short-term relief is not sufficient, last-resort options for SBA EIDL borrowers include an offer in compromise to settle the debt or potentially filing for bankruptcy. Chapter 7, Chapter 11, and Chapter 13 bankruptcy options are available depending on the circumstances of your loan and financial situation.
Before contacting the SBA or Treasury about EIDL repayment issues, gather necessary documents such as loan agreements, financial records, and hardship documentation. Having these documents organized can help streamline the process and improve your chances of getting a faster response.
If you need help with SBA EIDL repayment, consider seeking guidance from nonprofit organizations such as SCORE or your local Small Business Development Center for free or low-cost assistance. Professionals at these organizations are equipped to provide a variety of general support and guidance, and can also direct you to additional resources as necessary.
- Business accountants: A business accountant can assess your current financial situation, prepare financial statements, and assist you in developing a repayment strategy. They can also help with hardship or settlement applications and collaborate with other professionals like business attorneys or credit counselors.
- Business debt attorneys: If you’re contending with financial challenges, a business debt attorney can help you determine the best course of action. These specialists can clarify your rights and responsibilities, as well as negotiate on your behalf. It’s advisable to seek a business debt attorney with experience handling SBA EIDLs and working with the SBA and/or Treasury Department.
- Business bankruptcy attorneys: If you’re contemplating bankruptcy, consulting an experienced business bankruptcy attorney is recommended. These experts can explore alternative options with you and, if bankruptcy is deemed the most suitable path, they can manage the necessary paperwork and represent you in court.
Frequently asked questions
- Can SBA EIDLs be forgiven?
Unlike the Paycheck Protection Program (PPP) that offered forgivable loans, SBA COVID EIDLs are not forgivable. Borrowers are obligated to repay the debt according to their loan agreements. - How do I know if my EIDL had collateral?
SBA COVID EIDLs exceeding $25,000 required collateral in the form of a UCC lien. You can verify if your loan included a lien by reviewing your loan documentation for a security agreement or conducting a search on your state’s Secretary of State UCC search portal by business name. - How do I know if my EIDL has a personal guarantee?
Personal guarantees were mandatory for SBA COVID EIDLs surpassing $200,000. Individuals or entities owning 20% or more of the applicant business were required to provide a guarantee. This document is typically found in your loan paperwork as SBA Form 148, Unconditional Guarantee. - Can the SBA come after me personally if I can’t repay my EIDL?
If you signed a personal guarantee (mandatory for COVID EIDLs exceeding $200,000), the SBA can pursue you personally in the event of default. Even without a personal guarantee, the SBA can seek payment from you personally for fraud or breach of contract. - What happens if I ignore my SBA EIDL?
Neglecting your SBA EIDL can result in severe financial and legal repercussions. The SBA may seize your business and/or personal assets, involve the Department of the Treasury for collections, garnish wages, withhold tax refunds, and file a lawsuit to recover the debt. - Does closing my business cancel my SBA EIDL?
Closing your business does not absolve your responsibility for repaying your SBA EIDL as per the loan agreement terms. - Can SBA EIDL debt be discharged in bankruptcy?
SBA EIDL debt can potentially be discharged in bankruptcy, contingent on the bankruptcy type filed, loan terms, and presence of a personal guarantee. - What happens if I’m sent to collections over an SBA EIDL?
Being sent to Treasury collections over an SBA EIDL incurs a 30% collection fee added to your loan balance. The Treasury will employ various collection methods, including asset seizures, wage garnishment, withholding tax refunds, and legal action, to secure repayment. following sentence in a simpler way:"The new marketing campaign will target a younger demographic of consumers."
The new marketing campaign will focus on attracting younger consumers.