Some experts say many of these defaults were inevitable. COVID EIDLs were issued quickly and with minimal underwriting, approved amid emergency conditions with little consideration for what might come next. While the pandemic has ended, recovery for many small businesses has taken far longer. At the same time, entrepreneurs are facing additional pressures — inflation, rising costs, supply chain disruptions, tariffs — that make it increasingly difficult to repay this pandemic-era debt.
If you’re in this position, this guide walks you through what typically happens when EIDL payments are missed, what options may still be available and how to protect yourself as the consequences escalate.
💻 How I wrote this article
To bring clarity to EIDL repayment and default, I spoke with the following lenders, debt attorneys and finance experts who regularly work with small-business borrowers. Their expertise forms the foundation of the information and guidance shared throughout this article:
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Eric Croak, CFP, AWMA, president of Croak Capital.
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Leslie H. Tayne, Esq., finance and debt expert and founder of Tayne Law Group.
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Luz Urrutia, CEO of Accion Opportunity Fund.
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Mark Valentino, head of business banking at Citizens.
What happens when you miss payments on an SBA EIDL
Once you start missing payments on your SBA EIDL, the loan is considered delinquent. The SBA will send you payment requests via email, direct mail or through the MySBA Loan Portal. You’ll usually receive these notices, also known as demand notices, every 30 days until you make a payment. During this time, interest continues to accrue on your loan.
In order to collect repayment, the Treasury can:
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Garnish your wages.
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Withhold or offset tax refunds.
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Withhold Social Security income.
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File a lawsuit against you.
What your SBA EIDL terms mean for your liability
Whether missing SBA EIDL payments puts your assets at risk depends on how your loan was structured. The SBA required different protections based on loan size, which means not every borrower faces the same level of exposure.
If you’re unable to pay and your loan included:
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A UCC lien on your business assets (i.e. collateral), the government can claim those assets to cover your debt.
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A personal guarantee, the government can pursue repayment from you (and any other business owners who signed guarantees) directly. This means they can go after your personal assets, bank accounts and wages to collect repayment.
Keep in mind: Even if you didn’t sign a personal guarantee, your loan agreement may include language that could still hold you individually responsible. For example, your agreement likely contains terms that require you to keep financial records and only use the funds for approved purposes. If you violate these terms, the SBA could claim fraud or breach of contract — and potentially go after you personally.
EIDLs with personal guarantees
Generally, the SBA will seize your business assets first and only pursue you personally if your business assets don’t cover the debt you owe. It is not required to do so, however.
What happens to an SBA EIDL when a business closes
Closing your business does not eliminate your obligation to repay an SBA EIDL. Even if operations stop, you’re still responsible for the debt under the terms of your loan agreement.
Depending on your loan terms, the SBA — and later the Treasury — may attempt to collect from remaining business assets and, in some cases, personal assets, bank accounts or wages.
Your loan agreement also outlines specific steps you must take when closing your business, including notifying the SBA and working with it on a resolution for repayment.
Failing to do so could be considered a breach of contract, which may allow the government to pursue legal action to recover the debt.
If you’re going to close your business, you should keep detailed records with your loan documents, financial statements and all communications with the SBA or the Department of the Treasury. Consider seeking legal or financial advice early so that a professional can help you understand your rights and options.
What to do before you miss SBA EIDL payments
When emailing the SBA, you should include your loan number, as well as the reason for your request in the subject line. In the body of the email, include your loan number, reason for the request, business name, applicant name and contact information.
Because SBA EIDL payments were already deferred for 30 months from the disbursement date, hardship solutions are limited and may be difficult to access. For borrowers experiencing temporary financial difficulty, however, one short-term option may still be available.
To qualify for this program, you must:
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Ensure your loan is fewer than 90 days past due when you apply.
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Have an active loan account. Loans that have been charged off (i.e. your loan is approximately 180 days past due and the SBA has determined you won’t repay) are not eligible.
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Submit the request with an explanation of your temporary financial difficulty, as well as the reason why you believe it’s short-term.
When contacting the SBA about payment assistance, you’ll want to explain your financial situation and why you’re struggling to make payments. It can be helpful to include financial statements that show profit, income and expenses in order to demonstrate your repayment limits.
If you successfully enroll in the payment assistance program, be aware that interest will continue to accrue on the outstanding loan balance during your six-month period and you’ll need to pay an increased balloon payment at the end of your loan term.
In some cases, you may be able to negotiate for a modification to your loan agreement (e.g. extend the term or lower your monthly payment). To do this, however, you’ll need to prove a significant financial hardship — and you’ll likely want a business attorney to assist you through the process.
Last-resort options for SBA EIDL borrowers
If short-term relief isn’t enough, the remaining options are limited. These paths typically involve settling the debt or seeking court protection and should be considered only after other avenues have been exhausted.
An SBA offer in compromise (OIC) is a last-resort option used to settle your loan debt. With an OIC, you draft a lump sum settlement or payment plan that you’re willing to enact, and, if accepted, the SBA will resolve your debt — even if it’s less than what you owe. You can only use an OIC, however, if you’ve stopped business operations, liquidated all business assets and used the money to reduce your debt.
The process of submitting an offer in compromise is often slow, it requires extensive documentation from both you and your business and approval isn’t guaranteed. If you’re considering this option, you’ll want to work with a business attorney who is well-versed in SBA negotiations to help you through the process.
You may be able to discharge your SBA COVID EIDL debt through bankruptcy, but the outcome depends on the type of bankruptcy you file and how your loan is structured.
Chapter 7 bankruptcy
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Chapter 7 bankruptcy may eliminate your EIDL debt if there’s no personal guarantee. If there is, you’ll need to file both a business and a personal bankruptcy to clear your debt.
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You must prove your financial hardship and that no fraud occurred with the loan.
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In most cases, your business closes and assets are sold to repay creditors.
Chapter 11 bankruptcy
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Chapter 11 allows a business to stay open and restructure its debt under a court-approved plan, often by extending payments, lowering the interest rate or adjusting terms.
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As long as you keep up with your payments, the government can’t pursue the debt or seize collateral during your repayment plan.
Chapter 13 bankruptcy
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Chapter 13 bankruptcy is only available to individuals, including sole proprietors with business debt, but not LLCs or corporations.
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You set up a payment plan to repay your debts over a period of three to five years.
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As long as you make your payments, collection efforts are paused and any remaining eligible debt may be discharged at the end of the plan.
Documents to gather before contacting the SBA or Treasury
When you contact the SBA or Treasury about EIDL repayment issues, it helps to have your original loan paperwork, as well as documents that illustrate your financial hardship. Helpful items include:
Loan documents
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Your loan agreement (including loan number and promissory note).
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Personal guarantee.
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Payment history.
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Collection notices, if applicable.
Financial records
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Business and personal tax returns (from at least the last two years).
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Financial statements, such as income statements and balance sheets.
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Recent bank statements.
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Proof of how funds were used.
Hardship documentation
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A written explanation about your hardship.
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Documentation showing the status of business assets.
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Proof of material changes to the business, such as closure or loss of an owner/guarantor.
Communication records
Being organized can make the process smoother and help you get a faster response. Keep everything in one file or folder, so it’s easy to reference during your conversations.
Where to get help with SBA EIDL repayment
If you’re struggling to pay your SBA COVID EIDL, getting guidance from a professional can help you understand your rights and evaluate the options available to you. Consider experts such as:
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Nonprofit organizations. Nonprofits, such as SCORE or your local Small Business Development Center, can provide access to free or low-cost assistance. Professionals at these organizations can offer a range of general support and advice, as well as refer you to additional resources, as needed.
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Business accountants. A business accountant can review your existing finances, prepare financial statements and help you create a repayment plan. They can also support hardship or settlement applications and coordinate with other advisors, such as business attorneys or credit counselors.
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Business debt attorneys. A business debt attorney can help you decide the best course of action if you’re facing financial difficulties. These experts can also help you understand your rights and obligations, as well as negotiate on your behalf. Look for a business debt attorney who has experience with SBA EIDLs and working with the SBA and/or Treasury Department.
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Business bankruptcy attorneys. If you’re considering bankruptcy, you’ll likely want to consult an experienced bankruptcy attorney. These professionals can determine if there are other options available to you. If bankruptcy is the best choice, they’ll file the necessary paperwork and represent you in court.
Frequently asked questions
Can SBA EIDLs be forgiven?
Unlike the Paycheck Protection Program (PPP), which offered fully forgivable loans, SBA COVID EIDLs are not forgivable. Borrowers are required to repay the debt according to the terms of their loan agreements.
How do I know if my EIDL had collateral?
How do I know if my EIDL has a personal guarantee?
Personal guarantees were required for SBA COVID EIDLs over $200,000. Any individual or entity that owned 20% or more of the applicant business was required to sign a guarantee. You can find this document in your loan paperwork, typically listed as SBA Form 148, Unconditional Guarantee.
Can the SBA come after me personally if I can’t repay my EIDL?
If you signed a personal guarantee (which was required for COVID EIDLs over $200,000), the SBA can come after you personally in the event of default. Even if you didn’t sign a personal guarantee, the SBA can still seek payment from you personally in the case of fraud or breach of contract (such as a misuse of funds).
What happens if I ignore my SBA EIDL?
Ignoring your SBA EIDL can result in serious financial and legal consequences. If you ignore your loan and show no intent to repay, the SBA may be able to seize your business and/or personal assets to recover your debt. The agency can also send you to the Department of the Treasury for collections. The Treasury can garnish your wages, withhold tax refunds and file a lawsuit against you in order to collect payment.
Does closing my business cancel my SBA EIDL?
No, closing your business does not cancel or forgive your SBA EIDL. You are still responsible for the debt under the terms of your loan agreement.
Can SBA EIDL debt be discharged in bankruptcy?
Yes, it is possible for SBA EIDL debt to be discharged in bankruptcy. How the debt is treated, however, depends on the type of bankruptcy you file, your loan terms and whether you signed a personal guarantee.
What happens if I’m sent to collections over an SBA EIDL?
If you’re sent to Treasury collections over an SBA EIDL, you’ll incur a 30% collection fee, which is added to your loan balance. The Treasury will do everything in its power to collect repayment, including seizing assets, garnishing wages, withholding tax refunds and even filing a lawsuit against you.