Can I Close My Business With An Outstanding EIDL Loan, Or Do I Need To File For Bankruptcy?

Did your business apply for a loan through the Economic Injury Disaster Loan (EIDL) program, through the U.S. Small Business Administration (SBA), during the COVID-19 pandemic? Your business certainly is not alone. As a report from ABC News discusses, as of January 2023, payments are now coming due on these loans for millions of businesses, including businesses throughout South Florida. Indeed, as that report clarifies, “nearly 4 million small businesses and nonprofits nationwide received billions in government loans during the pandemic,” and “the average loan approved was $100,000.” While millions of businesses were able to defer payments on those loans for 30 months, that deferment ended on January 1, 2023. As such, about 1.6 million businesses are now required to make payments on loans they received through the EIDL program.

If the payments are too much for your business to handle, and if your business was already struggling even without EIDL payments coming due, can you close your business? Our West Palm Beach bankruptcy attorneys will explain what a business closure with an EIDL loan could mean, and what your business should consider.

If You Close Your Business, What Happens Next Depends Upon the Amount of Your Loan 

If you do not file for bankruptcy and merely close your business, the repercussions will depend upon the amount of the loan you received through the EIDL program. Generally speaking, the EIDL program provided loans of less than $25,000, between $25,000 and $200,000, and over $200,000. Loans of less than $25,000 were unsecured, which means there were no personal guarantees and no collateral. If you closed your business and have outstanding debt on a loan through the EIDL program of less than $25,000, there is little (if anything) the SBA can do to recover what you owe. Bankruptcy likely will not be necessary, but you should speak with a lawyer.

Now, the situation changes if your loan was between $25,000 and $200,000. These loans did not require a personal guarantee (which we will explain the implications of below), but they were secured loans. What that means is that business assets had to be used to secure the loan, and a default could result in the SBA seeking to obtain possession of assets in order to repay what you owe on the loan. Whether you should file for bankruptcy is a more complicated question, and it may depend on when (and how recently) you closed your business. A bankruptcy attorney can say more.

Finally, if your loan through the EIDL program was a $200,000-plus loan, you should already know that a personal guarantee was required. In these circumstances, you can discuss business bankruptcy with a lawyer, but you should also be discussing personal bankruptcy since you will be liable individually for the business loan — even if your business closes or goes through a liquidation bankruptcy.

Contact Our West Palm Beach Bankruptcy Attorney 

When you have any questions about business loan default or business bankruptcy, it is critical to seek advice from a lawyer who is able to assist you. One of the experienced West Palm Beach bankruptcy lawyers at Kelley Kaplan & Eller can assess your business’s circumstances and the terms of the loan your business received through the EIDL program, and we can advise you about the options that are available to you. Do not hesitate to reach out to our firm today to learn more about how we can assist you.

Sources:

abc11.com/small-business-ppp-loans-pandemic/12721676/

sba.gov/funding-programs/loans/covid-19-relief-options/eidl#:~:text=The%20COVID%2D19%20Economic%20Injury,and%20other%20normal%20operating%20expenses