The SBA is Suing Me After My Business Filed for Bankruptcy: What Do I Do?

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The Small Business Administration (SBA) offers advice, counseling, support and even special loan programs to help small businesses across the country succeed. These loans are designed to provide financial help to small businesses that want to purchase equipment, real estate and fund other needs, but when borrowers are unable to repay their loans, the SBA has the authority to take action.

In fact, the SBA can sue businesses and any personal guarantors that default on SBA-backed loans, and that can present a complex and challenging process for small business owners. Understanding the process of an SBA lawsuit is critical for businesses to navigate and resolve any issues effectively.

Below, we’ll discuss what you should do if the SBA is suing you after your business filed for bankruptcy.

What Are SBA Loans?

The SBA provides loans and guarantees on loans so that small businesses can obtain favorable terms on financing. These loans can be used for the purposes stated above and also for the acquisition or construction of buildings, or to purchase fixtures, machinery and other physical assets that are essential to operations. 

The lending process can vary depending on the type of loan program, but it typically involves experienced lenders and authorized offices that provide funds to small business owners. 

While many exceptions are made with SBA loans to provide these favorable terms, they still require careful management to avoid default and a possible SBA lawsuit.

Understanding Bankruptcy and Debt

Small businesses that are struggling  with debt may receive some financial relief through bankruptcy, but it can also trigger an SBA lawsuit within the bankruptcy case, or against the personal guarantors as the bankruptcy would not protect any personal guarantor.  In many instances, when the business files bankruptcy, a personal bankruptcy may also need to be filed to obtain bankruptcy protection. This is why it’s so important that borrowers educate themselves on their debt obligations and explore all options for managing their debt, including restructuring or refinancing.

To avoid complications and ensure compliance, you need to do everything in the correct order. The SBA also provides support and resources for small businesses struggling to make repayments, including education on debt management and financing. 

Personal Liability and SBA Guarantees

Some SBA loans come with personal liability and guarantees. In fact, most loans through the agency require small business owners to provide a personal guarantee that is secured by real assets.

This essentially means if the business is unable to repay its loan, you will could be personally responsible for covering the outstanding balance. In this case, your personal finances and assets could be impacted significantly.

The SBA is in the business of helping small businesses. The loan programs they offer are essentially guarantees to the private lenders who offer them, as they repay a percentage of any uncollectable debt should a borrower default.

This doesn’t mean that you’re off the hook, though, if you can’t afford to repay an SBA-backed loan.  However, it may present an opportunity to seek a settlement with the lender and the SBA collectively to obtain relief, through what is known as an “Offer in Compromise”.

SBA Lending Practices

The SBA has a network of authorized lenders such as credit unions, traditional banks and other financial institutions. They work with these private lenders to offer small business owners favorable loan terms in exchange for a guarantee on a portion of the loan from the federal government. 

The SBA also has a keen focus on supporting small businesses in underserved markets, such as women-owned and minority-owned businesses.

Understanding how the SBA’s lending process works and what the requirements are is essential to navigate everything successfully.

Protecting Personal Assets

As you can see, protecting your personal assets should be a top priority when you take out a loan for your business. Perhaps the most effective way to do so is by keeping your business and personal finances separate.

This includes establishing a formal business entity, which can provide a layer of protection for your personal finances and assets.  However, the SBA may still require you to pledge real or personal assets as collateral to obtain the loan, subjecting them to seizure or foreclosure upon default. 

It’s also a good idea to work with a skilled attorneyfinancial advisor to help you navigate the lending process, and to ensure you’re doing all you can to safeguard your assets. These experienced professionals can help guide you through the entire process, providing you with advice on the best ways to minimize personal risk. 

Being proactive in this way can help you access the funds you need for your business while reducing the likelihood that your personal assets will be at risk should you face financial challenges.

Timeline and Process of SBA Collection Actions

Before you take out an SBA loan, it’s important to understand the collection process. As with any loan, you are required to make timely payments according to the terms of the loan.

If you don’t, the lender will likely first notify you of default and outline the steps you need to take to bring the loan current. This serves as a way for you to address issues before they take further action.

If at this point you can’t resolve the default, then the private lender can file a claim with the SBA to recover the portion of the loan the agency guaranteed. After the SBA determines what amount, if any, they repay the private lender, the agency can then pursue additional collection actions against you should the debt remain unpaid.

This includes referring you to a collection agency or filing a lawsuit. Every step of the process involves specific deadlines and actions you must take, so it’s essential that you work with your lender and respond promptly to explore all options. 

Responding to the Lawsuit

If the Lender and/or the SBA files a lawsuit against you, you should carefully consider every aspect of it and engage in strategic planning to minimize any potential damages. Seek legal counsel with professionals experienced in handling SBA lawsuits so you can achieve the best possible outcome. 

They can help you understand what the SBA’s claims are, while also reviewing loan documents and preparing an effective defense strategy. 

Small Business Considerations

If you want to ensure long-term success of your business, and protect your personal assets, you must consider the potential impact of an SBA lawsuit on your business finances, operations and reputation. The lawsuit can affect your ability to secure new funding, access credit and even attract investors.

This is why it’s so important to communicate with your lender, the SBA and all other stakeholders to resolve the issue. You can also explore alternative financing options to support your business operations during the lawsuit. 

Exploring Options for Resolving Debt

An SBA lawsuit doesn’t mean you can’t explore other options for resolving the debt you owe, including coming to a settlement, negotiating with the agency or doing mediation. In fact, the agency may be willing to work with you to provide temporary relief or even restructure the loan.

Part of this resolution process could involve providing documentation and financial information to support your case, so make sure you have that information prepared.

Alternatives to Litigation

In many cases, lenders are willing to work with borrowers to find solutions to outstanding debt so everyone can avoid the courtroom. For example, you might be able to negotiate a new payment plan or request a loan modification so your payments are more manageable.

You might even be able to apply for an official SBA loan restructuring to reduce the overall amount of your outstanding debt or to provide you with temporary financial relief. 

An experienced debt collection and settlement attorney or financial advisor can help you understand all the options you have. Many can even work directly with your lender to develop a plan that fits your needs and avoids the expense and stress associated with litigation.

It’s important to take action early and explore alternatives to preserve your credit, grow your company and protect your business and personal assets.

Next Steps and Conclusion

If you’re facing an SBA lawsuit, it’s important to take immediate action to respond and explore all options for resolving the debt. While the SBA lawsuit process can be challenging and complex, you can navigate through issues effectively with the help of experienced legal counsel.

At Babi Legal Group, our attorneys have over 15 years of combined experience in business, debt collection and debt settlement law. We can provide you with expert advice on navigating an SBA lawsuit, protecting your business and personal assets through the process.

For more information, contact us today.

Facing an SBA Loan Default: How a Lawyer Can Help You Avoid Property Seizure

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The Small Business Administration (SBA) provides guidance and support to small businesses throughout the country in a number of ways. In addition to having advisers on hand to offer expert advice to small business owners, the federal agency also sponsors many different loan programs.

One of the biggest advantages of SBA loans is that they offer competitive interest rates and longer repayment terms than other types of loans available to small business owners.

These loans are originated and guaranteed by the federal government, with the SBA insuring as much as 85% of the loan balance through either local private lender partners or through direct SBA loans such as the Economic Injury Disaster Loan (EIDL).

Just like other loans, though, there are terms borrowers must abide by. This makes understanding all the conditions and terms of SBA loans crucial for borrowers so they can avoid default and potential tax debt.

Yet, ongoing economic changes could make it difficult for small business owners to repay their SBA loan debt, which could lead to potential default.

We’ll discuss this topic in more detail below, and outline how a lawyer can help small business owners avoid property seizure if they’re having trouble repaying their SBA loan.

Consequences of Default

Default happens whenever a borrower isn’t able to meet their repayment obligations on an SBA loan they took. If this were to happen, the small business owner could face severe consequences.

Once SBA loan default occurs, lenders can start debt collection efforts. This includes seizing any collateral that was used to secure the loan in the first place, such as equipment or real estate.

Generally speaking, the collect process will follow specific outlined protocols to recover the proceeds of the loan, as the lenders try to recoup any losses they might incur from the SBA loan not being paid back.

If you were to ignore a demand letter that the SBA sends during the default process, it can lead to your account being transferred to the U.S. Department of Treasury, which could result in a large potential tax liability and additional collection fees.

Understanding SBA Loan Default

So, what constitutes SBA loan default? In essence, borrowers who don’t abide by the terms of their loan or a modified loan, including missing payments repeatedly, are considered to be delinquent, which could eventually result in them being officially labeled as in default status.

Before you are actually transferred into default status, your loan will be considered delinquent once you miss payments. Your lender and/or the SBA will contact you to demand that you make repayments according to the terms of your loan.

In most cases, default of an SBA loan will occur after about three or four months of missed payments without any contact between you and the lender. During that time, the SBA will usually try to collect the outstanding debt via various means.

While the SBA guarantee that is placed on these loans will protect private lender partners from absorbing the full loss of defaulted SBA loans, borrowers still face significant financial penalties and hardship should they default.

Tax Implications

There are serious potential tax implications to defaulting on an SBA loan. This includes accumulating tax liability and debt for the business owners themselves.

For instance, if you default on an SBA loan, the IRS has the authority to withhold any tax refunds or government benefits to collect on the debt. They may also take direct legal action such as filing a lawsuit to recover the outstanding SBA loan debt.

That’s why it’s so important for business owners to consider this potential tax liability, as well as their own personal income tax situation, when faced with SBA loan default. Doing so will help you navigate what can be a very complicated process so you can avoid even deeper financial hardship.

Compromise Program

Depending on your specific situation, there may be options available to you to avoid default if you’re having trouble repaying your SBA loan. One such potential option is called the offers in compromise program, which can provide assistance to financially distressed taxpayers who can pay a reasonable portion of their outstanding tax debt.

This program may provide an alternative to bankruptcy and can help small business owners resolve outstanding tax debt so they can avoid more financial hardship.

The SBA typically only considers these offers in compromise (OIC) if borrowers meet certain qualifying criteria. Some states also have additional criteria that they will weigh when making a determination.

For example, in New York, the state will consider whether accepting an offer in compromise will be in the best interest of both the state and its taxpayers. In other words, even if you do meet the other criteria, your offer may not be accepted.

Offer in Compromise

The OIC program allows certain small business owners to settle their outstanding SBA loan debt for less than the total amount they owe. It requires the borrower to provide both proof of the financial hardship they are facing as well as their inability to repay the loan within a reasonable period of time.

One requirement of the OIC is that the business must close as well as go through asset liquidation to reduce their outstanding debt.

This is obviously a serious step to take, which is why having an experienced business attorney on your side is so beneficial. They can assist you with drafting and submitting an OIC to the SBA, and helping you gather all required supporting documentation including detailed financial information.

The OIC process can be very complex, but it is a potential solution if you’re facing significant financial challenges and potential default on an SBA loan.

SBA Loans and Default Prevention

As you can see, preventing default on an SBA loan is critical if you want your small business to survive. This is why taking early action is so crucial in helping you manage and/or avoid missed repayments.

There are many strategies available that can help you address repayment difficulties you may be having before a default would occur. This includes re-evaluating your business finances and reaching out directly to your lender to investigate other options.

By proactively managing the repayments of your SBA loan, you can protect your business credit. Communication with your lender is a key aspect of this process, as it can help you avoid defaulting and taking on additional tax debt.

Small business owners who want to prevent SBA loan default should explore any alternative repayment options and seek professional assistance from an experienced bankruptcy and/or financial adviser.

Conclusion and Next Steps

Facing potential SBA loan default can be very challenging for small business owners. Understanding the consequences and options of default is crucial to navigate the complex process successfully.

If you’re facing default, consider seeking professional assistance, such as the experienced lawyers at Babi Legal Group, to help you resolve your SBA loan debt and avoid property seizure.

The compromise program and an OIC are potential solutions, but you need to investigate them further with an expert. By understanding what options you might have and taking proactive steps, you can work to resolve SBA loan debt and avoid further financial challenges.

The attorneys at Babi Legal Group have more than 150 years of experience in business, debt collection and debt settlement law, and can help guide you when trying to avoid SBA loan default. 

For more information, contact us today.

Understanding the SBA Hardship Accommodation Plan

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During the COVID-19 pandemic, the federal government created new programs and expanded some already in existence to help people recover from economic loss they suffered. Small business owners were a big focus of these efforts, with two very popular loan programs being offered to them.

One was the very popular Paycheck Protection Program (PPP), which offered loans that could be converted into forgivable grants if the borrower used the funds for certain purposes and could prove they did so.

The other was the Economic Injury Disaster Loan (EIDL) program, which, while already in existence, was expanded considerably. Unlike the PPP program, these loans had to be repaid in full.

Borrowers who were having trouble repaying the loans did at one point have the opportunity to take advantage of the Hardship Accommodation Plan (HAP), though that is no longer available.

Below, we’ll discuss the HAP in more depth and what options borrowers have if they can’t repay their EIDL loan.

Introduction to Economic Injury Disaster Loans

The EIDL program is offered through the Small Business Administration (SBA). While it was available prior to the pandemic, it got expanded considerably during it. 

The expansion was done to essentially declare the entire country in a disaster zone, which by default made all businesses eligible to apply from a location perspective. That’s because in order to be eligible for an EIDL loan, the business had to be in a declared disaster zone, and suffered substantial economic injury as a result of that disaster.

The loan program is meant to help nonprofit organizations, small agricultural cooperatives and small businesses receive financial support if they suffered substantial economic injury due to the pandemic.

These loans provided a vital lifeline to small business owners who were affected by the COVID-19 pandemic, offering them long repayment terms and low interest rates. 

The SBA integrated various other programs to help borrowers manage their EIDL loan debt, including the HAP.

Eligibility and Application

To be eligible to receive assistance under HAP, borrowers had to have an existing EIDL loan and be experiencing temporary financial hardship still. What the plan did was allow borrowers to either defer payments or make reduced payments for a specific temporary period, which was meant to help them manage their debt while they were still trying to recover.

Business owners who were interested in applying to the HAP could either apply online through the SBA’s portal or contact the COVID EIDL Servicing Center directly.

The SBA made approval decisions on a case-by-case basis, after borrowers provided documentation that proved they were still experiencing financial hardship.  

COVID-19 EIDL Program Overview

During the COVID-19 pandemic, the EIDL program was expanded considerably to try to help small businesses that were struggling. In addition to the low-interest loans with long repayment periods, the program also offered other forms of assistance including some grants.

When the program was expanded, the SBA provided guidance on all the details of the program, including typical repayment terms, application procedures and eligibility criteria, among other things.

All of this information was available directly from an SBA center, the SBA’s website or one of the agency’s Resource Partners.

Managing Economic Injury Disaster Loan Debt

Even with the added financial support, many small business owners still had trouble recovering from the economic damage the pandemic caused. Part of those challenges was managing this newfound EIDL loan debt, especially as they were trying to adjust business operations or account for lower-than-expected revenues.

The SBA did offer many resources for borrowers in this situation, including mentoring and counseling about managing debt. 

As mentioned, the HAP was also available to many borrowers while the pandemic was still going on, to help provide them more temporary financial relief. However, that program expired in early 2025, meaning borrowers had to look elsewhere for relief.

Some borrowers may still have other options including debt settlement,  loan modifications and repayment plans, but there isn’t a one-size-fits-all solution to the issue.

That’s why it’s essential for small business owners to understand the full terms of their EIDL loans — including personal guarantees, repayment terms and interest rates — so they can know what they’re responsible for, what would happen if they default and what options might be available to them.

EIDL Assistance Options

While the HAP program is no longer available, the SBA still provides guidance and support for small business owners who are struggling to repay their EIDL loan. Many of the agency’s Resource Partners can provide mentoring and financial counseling.

The SBA also has an online portal that provides an easy and convenient way to manage EIDL loans, make payments and request various servicing actions. The COVID EIDL Servicing Center is also available for any borrowers who would like more direct assistance.

COVID EIDL Repayment and Forgiveness

The PPP was extremely popular because borrowers had the opportunity to convert the money they borrowed into a forgivable grant, as long as they used the proceeds for specific operational expenses. Unfortunately, this is not the case for EIDL loans.

These loans had to be repaid in full, including all related fees and interest rates. Borrowers who are having trouble repaying should investigate their options so they can avoid defaulting on the loan or having the loan charged-off.

Conclusion and Next Steps for COVID-19 Economic Injury Disaster Relief

The SBA’s Hardship Accommodation Plan was a great program that provided EIDL loan borrowers with a way to receive temporary financial relief if they were having trouble repaying their loan. Unfortunately, that program is no longer available, as it expired in early 2025.

Small business owners who are still having trouble repaying their EIDL loan should contact the SBA or loan servicer to find out whether they have any options to receive financial relief. This could include changing repayment terms or modifying the loan in a way that provides relief.

You may also want to consult with an experienced bankruptcy attorney if you have exhausted all of your options. The expert attorneys at Babi Legal Group have more than 150 years of experience in bankruptcy, business, debt settlement and debt collection law, and can provide you with the guidance you need to manage your EIDL loan debt if you are having trouble repaying.

For more information, contact us today.

Can Bankruptcy Discharge SBA EIDL Loans? What You Need to Know

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The Small Business Administration (SBA) supports small businesses throughout the country in a number of ways. One example is the Economic Injury Disaster Loan (EIDL) program, which offers loans with advantageous terms to nonprofit organizations and small businesses affected by disasters.

The EIDL loans have not been around for a while, but became very popular during the COVID-19 pandemic, when the federal government said that every business throughout the country was located in a disaster zone.

The loan program was made available to qualifying small businesses, with the funds able to be used for working capital and other expenses.

With most repayment assistance programs now expired, borrowers who are having trouble repaying EIDL loans may have to consider filing bankruptcy to gain financial relief as the SBA is not offering any forgiveness. But, can bankruptcy discharge SBA EIDL loans?

We’ll examine that topic below.

COVID-19 and Business Challenges

EIDL loans provided critical financial support to small businesses that were affected by the COVID-19 pandemic. Most faced significant challenges seemingly overnight — from increased expenses to reduced revenue.

While the pandemic has ended, and so, too, have the financial relief programs that launched, some small businesses are still struggling to thrive.

The SBA and other government agencies make relief and support programs available frequently. So, make sure to understand the resources that are available to you to help your small business navigate the current economic environment.

Eligibility and Application

Small business owners who wanted to apply for an EIDL loan had to meet certain criteria. This includes being located in a disaster area, the definition of which was expanded to include the entire country during the pandemic.

Businesses also had to demonstrate that they suffered substantial economic injury as a result of the pandemic. 

To apply, the SBA required businesses to submit financial documents such as financial statements and tax returns during the application process, which could be done entirely online. The SBA then reviewed the documents to determine a business’ eligibility and how much they were willing to lend.

Personal Guarantee and Liability

Depending on the amount of the EIDL loan, the SBA could have required businesses to put up collateral to secure the loan. In fact, loans of $200,000 or more typically required business owners to put a personal guarantee along with the loan, which made them personally liable for repaying the loan.

Essentially, personal guarantees might put the business owner’s personal assets including their car or home at risk if the business defaults on repaying the loan. 

This is why it’s always important to carefully review all loan documents so you can understand your personal level of liability.

Loan Terms and Repayment

Many EIDL loans were unsecured loans, not requiring any collateral or personal guarantee. However, some required those extra steps if they were larger amounts.

One of the biggest advantages of these loans was that they had favorable loan terms. They had a fixed interest rate and a repayment term that could last as long as 30 years. 

Borrowers also didn’t have to start repaying the loan until one year after they received the money. Unlike loans from the Paycheck Protection Program (PPP), there was no option to have EIDCL loans forgiven.

Bankruptcy and Loan Dischargeability

Even after receiving EIDL loans, many small businesses continued to experience economic hardship. At one point, the SBA offered the Hardship Accommodation Plan (HAP), which provided temporary relief to these borrowers.

However, that expired in March 2025. Borrowers who are still having trouble repaying their loan might have options for loan modification, but bankruptcy could also be an option.

Like other debts, EIDL loans can be discharged in bankruptcy. The process it takes to do that and the outcome of it, though, depend on what type of bankruptcy you filed as well as your personal liability.

Personal liability for EIDL loans can be eliminated through either Chapter 7 or Chapter 13 banrkuptcy.  Chapter 7 bankruptcy can eliminate personal liability for EIDL loans, but there are certain eligibility requirements borrowers had to meet.

If you are considering bankruptcy to discharge EIDL loan debt, it’s best to consult with an experienced bankruptcy attorney to determine the best course forward. While bankruptcy can give you relief from some debt, you also should understand all the potential consequences of it as well as any alternative options you might have. 

Loan Settlement and Alternatives

In some cases, the SBA may have allowed borrowers to negotiate a settlement or modification of an EIDL loan. An experienced attorney or financial advisor can help you explore all available options to determine what the best course of action for you might be.

While bankruptcy might be the best choice, it’s still important to weigh all your options based on the potential benefits and consequences.

Business Closure and Loan Repayment

If a business closes as a result of financial difficulties, the owner still might be personally liable for the EIDL loan repayment, depending on the circumstances. If this is the case, the SBA could pursue collection actions, such as tax refund offsets and wage garnishment, to recover the outstanding balance.

Again, this speaks to the importance of fully understanding your obligations and repayment options you might have, even if your business no longer operates. Consider consulting with an experienced attorney or financial advisor to develop a plan for managing your debt and minimizing your personal liability.

Real Examples and Case Studies

Learning from what others have experienced can help you develop a strategy that works for you for minimizing liability and managing debt as a small business owner. Many people like you have gone through similar situations before, and they have much wisdom to share through these experiences.

Understanding practical implications and applications of EIDL loans as well as bankruptcy can help small business owners make informed decisions.

In addition, the SBA exists to help support small business owners. In addition to loan programs such as the PPP and EIDL, the agency provides guidance and resources to help them navigate through recovery.

Additional Resources

If you are having trouble repaying your EIDL loan, it’s best to reach out directly to the SBA for guidance on options available to you. There are local offices the agency runs, as well as a detailed website and a phone hotline where people can help.

It’s also a good idea to consult with financial advisors and experienced attorneys such as those at Babi Legal Group, who can provide you with expert guidance and support.

Our firm has more than 150 years of experience in business, bankruptcy, debt settlement and debt collection law. To learn more about how we can help you, please contact us today.

Can the SBA Take Your Home If You Default on an EIDL Loan?

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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.