What a Personal Guarantee Means for Your Business’s EIDL Loan
Businesses throughout Florida that received funding through the Economic Injury Disaster Loan (EIDL) program are now in the process of repaying those loans. With loan periods of 30 years, most businesses can expect to be repaying their EIDL loans for decades to come. Yet for businesses that are struggling financially, the prospect of repaying an EIDL loan based on the current terms may seem like an impossibility. For those businesses that received a substantial EIDL loan of more than $200,000, it is critical for the business owner who provided a personal guarantee to understand what default on an EIDL loan can mean for them, and what options may be available to prevent default.
Our West Palm Beach business law attorney at Kelley, Fulton, Kaplan & Eller can tell you more, and our firm can begin assisting you with your options for managing your EIDL loan as soon as you are ready.
Understanding a Personal Guarantee
In order to understand what a personal guarantee means for your business’s EIDL loan, it is essential to have a clear understanding of what a personal guarantee entails. A personal guarantee, sometimes written as a personal guaranty, is a term used in business financing, according to Business.com. In general, when a business is seeking a loan, in order to issue the funds and approve the loan, the creditor may want a personal guarantee, which is “a contractual stipulation in which you acknowledge that you are personally liable for a debt if your business cannot repay it.”
Accordingly, if your business has an EIDL loan with a personal guarantee, if your business cannot repay the loan or defaults on the loan, you will become personally liable. In other words, if the SBA does not receive timely payments on the EIDL loan your business borrowed — whether that is because your business simply does not pay, your business closes, or your business files for liquidation bankruptcy — you will become personally responsible for repaying the loan.
Personal Guarantee Versus Collateral on EIDL Loans
How can you know if your business’s EIDL loan has a personal guarantee?
Generally speaking, for loans of $25,000 or less, no collateral or personal guarantee was required. For loans totaling more than $25,000 but $200,000 or less, the SBA typically required collateral but not a personal guarantee. Loans of more than $200,000 required a personal guarantee. To determine whether collateral or a personal guarantee is associated with your loan, you should review the initial contract with a business lawyer in West Palm Beach.
Contact Our West Palm Beach Business Law Attorneys Today
If your business received an EIDL loan for which you made a personal guarantee, it is essential to seek legal advice if your business is struggling to repay its EIDL loan. As we discussed above, the existence of a personal guarantee in your contract will mean that you can be personally liable for repaying the EIDL loan if the business entity does not meet the repayment terms. If your business does not see a way forward for repaying the EIDL loan, you should get in touch with one of the experienced West Palm Beach business lawyers at Kelley, Fulton, Kaplan & Eller to find out about options that may include selling the business or filing for reorganization bankruptcy. Contact us today for more information.
Sources:
sba.gov/funding-programs/loans/covid-19-relief-options/covid-19-economic-injury-disaster-loan/about-covid-19-eidl
business.com/articles/risks-of-personal-guarantee/
