7 Common Questions About SBA EIDL Loans and Personal Guarantees
Hey, I’m Jason, founder of Distressed Loan Advisors. If you’ve found your way here, you’re probably trying to navigate the wild world of SBA EIDL loans and personal guarantees (PGs). Trust me, you’re not alone. I’ve talked to thousands of people who feel like they’re caught in the financial equivalent of a bad reality TV show—tons of drama, no clear ending.
So, to save you some time and headaches, I’m tackling seven of the most common questions I get about EIDL loans and personal guarantees. Ready? Let’s dive in.
1. Can the SBA add a personal guarantee to my loan after the fact?
Nope, they can’t sneak that in like an extra charge on your cable bill. Here’s the deal: loan agreements are like a contract—you agree to the terms at the outset, and any changes (like adding a personal guarantee) would need both parties to agree. So, unless you sign on the dotted line again, the SBA can’t just slap a personal guarantee onto your loan.
However, if you ask for changes—like wanting to release some collateral—the SBA might say, “Sure, but only if you sign a personal guarantee.” I haven’t seen this happen often, but it’s theoretically possible. The important takeaway? You’re in control. They can’t change the game without your consent.
2. If I personally guarantee my loan, does that mean my house is pledged as collateral?
Absolutely not. A personal guarantee and pledging collateral are two very different things, though I get why people mix them up. Let me break it down: a personal guarantee is like you saying, “Hey, I’ll pay this loan back even if my business can’t.” But it does NOT mean your house or any other personal assets are on the table—unless you specifically signed a mortgage or pledged collateral when you took out the loan.
For EIDL loans, I can tell you with near-certainty that personal residences are not part of the deal. I’ve done over a thousand consults, and I have yet to meet someone who had to pledge their home for an EIDL loan. Even in cases of default, it’s highly unlikely that the SBA will come knocking on your door for your house. Could they, in theory? Sure, but they haven’t in practice.
3. Will the SBA release me from my personal guarantee if I sell my business?
Short answer? No. Unfortunately, the SBA doesn’t let you off the hook that easily. If you sell your business and the buyer takes over the loan, the SBA’s attitude is usually, “Cool, but we’re keeping you on as a guarantor.” So, if your buyer flakes on the loan payments, guess what? You’re still on the hook.
I haven’t seen a ton of these transactions go through, to be honest, so it’s not common. But when it does happen, the SBA typically requires that the original borrower (that’s you) stay on as a backup.
4. Can I file for personal bankruptcy to deal with my EIDL loan?
Yes, you can—kind of like hitting the financial reset button. Unlike student loans, EIDL loans aren’t immune to bankruptcy, so you can include them. That said, I’m not a bankruptcy attorney, and I highly recommend talking to one to figure out whether you qualify and what type of bankruptcy is best for you. From my experience, though, EIDL loans can be wiped out through bankruptcy just like any other loan.
5. Will I go to jail if I default on my EIDL loan?
Good news: unless you committed fraud, you’re not heading to the slammer. There are a lot of stories out there about people going to jail over their EIDL loans, but here’s the key difference: those people got in trouble because they lied on their loan applications. If you said you had a 50-person company and really it’s just you and your dog in the back office, or you used the loan to buy a yacht instead of keeping your business afloat, then yeah, you could be in hot water.
But if your business took a nosedive because of the pandemic and you simply can’t make the payments, you’re not going to jail. That’s just a default, not a crime.
6. What’s the difference between my loan being referred to the Treasury and being placed in the Treasury Offset Program?
Here’s where things get a bit technical, but don’t worry—I’ll break it down. When your loan is referred to the Treasury, it’s basically like the SBA passing the baton. The Treasury takes over servicing the loan, adding penalties (up to 30%) and handling all your communications. But a few months ago, the SBA hit reverse on this. They pulled the loans back from the Treasury and are now holding them themselves for up to two years, even if they’re in default.
Now, the Treasury Offset Program is a different beast. This is the government’s sneaky way of collecting money from you without suing you. They can garnish your wages, snag your tax refunds, and even dip into Social Security. They don’t need to take you to court to do it—they’ve got the statutory authority to just take what they’re owed. Fun, right?
7. Am I going to get sued by the SBA?
Right now, the answer is: probably not. In all the years I’ve been doing this, I’ve never seen anyone sued over a defaulted EIDL loan—unless they committed fraud. Typically, the SBA just refers defaulted loans to the Treasury Offset Program. That’s the standard procedure.
Could this change? Sure. Politicians could decide to crack down harder on defaulted loans. But based on what I’m seeing, it’s highly unlikely that you’ll face a lawsuit if your EIDL loan defaults. Treasury Offset is a more likely outcome.
So there you have it—seven of the most common questions I get about EIDL loans and personal guarantees. If you’re still scratching your head or want more personalized advice, feel free to book some time with me. I’ll be happy to help you navigate this financial maze. Thanks for tuning in, and we’ll see you next time!
