Can the SBA Take Your Home If You Default on an EIDL Loan?
During the COVID-19 pandemic, many small business owners took advantage of new financial support programs provided by the federal government. One such popular plan was the Economic Injury Disaster Loan (EIDL), which was run through the Small Business Administration.
The expansion of the EIDL program gave small business owners throughout the country access to funding to help them recover from economic injury they suffered as a result of the pandemic.
Unlike the Paycheck Protection Program (PPP), EIDL loans had to be repaid. Still, some borrowers had trouble paying them back. While the SBA offered a temporary plan to ease the repayment burden, called the Hardship Accommodation Plan (HAP), that option has now expired.
So, are there any options left for borrowers who are struggling to repay their EIDL loan? We’ll take a look at that topic, and whether the SBA can take your home if you default on an EIDL loan, in this article.
EIDL Loan Basics and Eligibility
The EIDL program was created before the pandemic, but underwent significant expansion in early 2020. The federal government expanded the definition of a disaster zone when the pandemic began, essentially opening up the program to every small business throughout the country.
Before that change, small businesses had to be located in a region affected by a natural disaster.
Other requirements for EIDL loan eligibility included proving that the business suffered economic injury as a result of the pandemic, as well as other SBA qualifications.
EIDL loans of less than $25,000 didn’t require any personal guarantee or collateral. Loans between $25,000 and $200,000 required the business owner to put up business collateral to qualify, but not a personal guarantee.
Any EIDL loan of $200,000 required that the business owner put a personal guarantee associated with the loan.
COVID-19 EIDL Loans and Personal Guarantee
Depending on the amount of the EIDL loan, the borrower may have had to attach a personal guarantee to the money borrowed. This puts the personal assets of the borrower at risk should they default on the repayments.
Small business owners are not personally liable for certain business-related debts if the business can’t repay them. However, the personal guarantee essentially removes that protection.
In other words, if the small business owner cannot make the repayments, then their personal assets such as their home could be in jeopardy.
This is why it’s very important for all borrowers to read through loan documents and ensure they thoroughly understand every aspect of them before signing on the dotted line.
EIDL Assistance and Loan Options
EIDL loans had to be repaid, unlike PPP loans, which had an option for loan forgiveness. The SBA did provide alternative options for EIDL borrowers who were having trouble repaying their loans.
The most popular program was the HAP, which offered temporary relief from payments for any borrower who could demonstrate they were still suffering economic injury. Unfortunately, that program expired in the early stages of 2025.
Still, there are loan modification options available for borrowers, which can be obtained by contacting the COVID EIDL Servicing Center. There also may be other options available through the SBA’s Resource Partners.
COVID EIDL Loans and Default Consequences
There are serious potential consequences for borrowers who default on a COVID-19 EIDL loan. This includes potentially losing business assets and having credit scores damaged.
The SBA also has the power to take servicing action against borrowers who default on their EIDL loans, which could include sending them to collections. If you were required to sign a personal guarantee on the loan, it could also mean that your personal assets are at risk.
All borrowers need to be aware of the specific risks of default for them, and seek assistance from either a financial advisor or the SBA directly if they need help.
Hardship Accommodation Plan and Loan Modification
When it was still available, the HAP provided temporary financial hardship assistance to borrowers in the EIDL program. Assistance included reduced payments and even deferment on payments for a temporary period of time.
Even though that program has come to an end, borrowers still may be able to qualify for loan modification through the SBA or other partners. If this is an option you’d like to pursue, reach out to the SBA or your loan servicer directly.
Secured and Unsecured Loans
The SBA offered both unsecured and secured options through the EIDL program. Again, this was based on how much money the loan was for.
Secured loans are those that require collateral. These physical assets could be either from the business or even personal property.
In most cases, secured loans offer more favorable loan terms, such as lower interest rates. Of course, the downside to them is that if you default on them, the assets you put up as collateral are at risk.
This makes it essential to understand what a secured and unsecured loan is, so that you can choose which option would fit your needs best.
Bankruptcy and Loan Repayment
Small business owners who are still struggling to repay their EIDL loans may consider filing for personal and/or business bankruptcy to discharge the loan obligation. This is especially true now that the HAP and other alternatives are no longer easily available.
Before filing for bankruptcy, it’s best to consult with a financial advisor or experienced bankruptcy attorney to figure out what’s best for you and the business.
Bankruptcy can have serious consequences, including a potential loss of business and/or personal assets and damage to credit, so it shouldn’t be taken lightly.
Conclusions and Next Steps
During the height of the pandemic, the SBA offered the Hardship Accommodation Plan to help small business owners who were struggling to repay their EIDL loans. With that no longer available, though, it’s possible that borrowers are searching for options.
If you need relief from your debt obligations under the EIDL loan, bankruptcy may be a viable way out. Of course, it’s best to understand all the possible ramifications of it before filing, including consulting with an experienced bankruptcy who’s well-versed in the law.
At Babi Legal Group, our team of attorneys has more than 150 years of experience in bankruptcy, debt settlement, debt collection and business law. We can guide you through the ins and outs of bankruptcy if you’re struggling to meet your EIDL loan obligations.
For more information, please contact us today.
