What Will Happen To EIDL Loans In A Business Bankruptcy?
Does your business have an Economic Injury Disaster Loan (EIDL) program loan from the pandemic, and is your business considering bankruptcy as EIDL payments are coming due? It is critical to understand what will happen to your EIDL loan in a business bankruptcy and whether you could be personally impacted by a business bankruptcy filing. To understand what is likely to happen to EIDL loans in bankruptcy (and the implication of a business bankruptcy filing), it is important to understand what EIDL loans are and the different forms of EIDL loans that were provided to businesses.
Know About EIDL Loans
According to the U.S. Small Business Administration (SBA), the EIDL program was designed to “provide funding to help small businesses recover from the economic impacts of the COVID-19 pandemic.” The EIDL program included two types of funding: EIDL loans and EIDL Advance funds (like grants). It is important to know that there were other types of COVID-19 loan-relief programs through the SBA that provided loans like Payment Protection Program (PPP) loans, and these loans are distinct from EIDL loans. Loans through the EIDL program have a 30-year repayment period, yet the amount of the loan payment may still be difficult for many businesses.
In the first round of funding, businesses could request a loan through the EIDL program of up to $150,000, and that number increased to $200,000 in the second round of funding. Smaller loans through the EIDL program of less than $25,000 were also granted. Depending upon the amount, the loans came with different requirements that ultimately will play a role in determining the effect of a business bankruptcy filing.
EIDL Program Loans of Less Than $25,000
Loans through the EIDL program that were less than $25,000 were unsecured loans. This means the SBA will not be required to be repaid for these loans if your business files for Chapter 7 bankruptcy, and there will be little the SBA can do to recover the debt since loans of this amount did not require a personal guarantee.
EIDL Program Loans Between $25,000 and $200,000
Loans through the EIDL program that were less than $200,000 were secured loans (meaning that the SBA will likely have priority for repayment in a Chapter 7 bankruptcy, or will need to be repaid in a Chapter 11 bankruptcy), but they did not require business owners to provide a personal guarantee. Accordingly, even if your business files for bankruptcy, you will not be on the hook individually for the loan your business received through the EIDL program.
EIDL Program Loans Over $200,000
Loans through the EIDL program over $200,000 are different. The SBA required business owners to provide personal guarantees, which means that the business owner who provided the personal guarantee is liable for the debt even if the business files for bankruptcy and ultimately closes.
Contact a West Palm Beach Bankruptcy Attorney
If your business is considering bankruptcy and has a loan through the EIDL program, you should seek advice from one of the experienced West Palm Beach bankruptcy lawyers at Kelley, Fulton, Kaplan & Eller about how a bankruptcy filing will impact your business’s finances with regard to the loan, as well as your personal financial circumstances for larger loans.