Attention Business Owners: Can’t Pay Back Your SBA Loan? – RJB Law Offices

While there are different types of SBA loans, the one I’ll be discussing in this article is the EIDL (Economic Injury Disaster Loan) that a lot of business owners obtained to recover from the financially devastating impact of the COVID-19 pandemic. Loan amounts were anywhere from a few thousand dollars up to $2 million.
A lot of these loans have now come due. Recently my office has received many phone calls from borrowers who are still in recovery mode. A lot of them tell me that they don’t even know if their business will survive, let alone be able to pay another debt on top of the pile of bills that they are already struggling with.
These loans were given to be used for working capital and operating expenses. They are not forgivable in the same way as the PPP (Paycheck Protection Program) loans are and must be repaid. The interest rate on these loans was 4% with a 30-year payment term. For loans over $200,000 a personal guarantee was required, in addition to pledging business assets as collateral for the loan.
When a business owner defaults on an EIDL, any collateral pledged is at risk. And if you personally guaranteed the loan as the business owner, you can also be sued by the SBA personally. In other words, your own personal assets may be at risk if a judgment is obtained against you. The government can take your tax refund to collect. The default will also show up on your personal credit report, making borrowing in the future either difficult or impossible.
As of April 2023, it appears that the SBA may have been open to offering the Offer in Compromise Program (like the IRS program that allows delinquent taxpayers to have their taxes forgiven if they have little or no assets) as a possible option to resolve a delinquent EIDL. However, it is too early to tell if this, in fact, will happen. To be honest, I am not very hopeful currently. Because it is too new, no one knows for sure how flexible or inflexible the SBA will be in partially forgiving the loan. Also, this is only possible if the business has closed. Why? Because the SBA would want all collateral liquidated first and all collection efforts exhausted before considering settlement as a last resort.
If you have unfortunately shut down your business or think that you may be in the process of doing so, making an offer to settle with the SBA may not be beneficial to you personally unless you signed a personal guarantee when you obtained the loan. In a lot of cases, filing Chapter7 bankruptcy to either discharge the debt (if unsecured) or pay part of it through Chapter 13 may be a better option. If you are struggling with your EIDL and don’t know what your options are, it is best to seek legal counsel right away to find out what your legal rights are so that you are not caught unprepared.
Ray Bulaon is a debt and IRS tax resolution attorney in Valencia who has successfully helped more than 6,000 clients. For a free consultation, call 866-477-7772 or 661-775-4880.