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As we move into February 2025, it’s time for an updated look at the current state of EIDL loans. While some things remain consistent, many borrowers still have questions about loan repayment, asset sales, personal guarantees, and potential forgiveness. Let’s break it all down.
Selling Business Assets? Get SBA Approval First
If you’ve closed your business and plan to sell your remaining business assets, you must get SBA approval. When you took out an EIDL loan, the SBA secured a lien on all business assets for loans over $25,000. That means if you plan on liquidating assets, including bulk inventory sales, you need SBA permission.
Exception: Selling Inventory in the Normal Course of Business
- If you run a retail store, selling inventory as you normally would does not require SBA approval.
- If you’re liquidating all inventory at once or selling business equipment (like a pizza oven from a closed pizzeria), you must get SBA approval.
Failing to notify the SBA before selling assets could result in a fraudulent conveyance designation, which can lead to serious consequences, including a referral to the Inspector General for investigation. If you’ve already sold assets without SBA approval, do not use the money to pay personal bills or other debts—this will only make matters worse. Instead, submit the proceeds to the SBA and explain the situation.
Can You Remove a Personal Guarantee? Probably Not.
One of the most frequently asked questions is whether borrowers can remove a personal guarantee from their EIDL loan. The short answer: unlikely. The only real options are paying off the loan, negotiating an Offer in Compromise (OIC) if one becomes available, or filing for personal bankruptcy.
Understanding Personal Liability
- Loans over $200,000: These did require a personal guarantee.
- Loans under $200,000: These did not require a personal guarantee unless the borrower was a sole proprietor.
- LLCs, S Corps, and C Corps: If the loan was under $200,000 and taken out under a business entity, there was no personal liability.
If you’re uncertain about your loan’s personal liability, I can help clarify that during a consultation.
Did the SBA Take Your Home as Collateral? Probably Not.
Another common misconception is that the SBA has placed liens on borrowers’ homes. In reality, this is highly unlikely.
- A personal guarantee does not mean a lien on your home.
- SBA loan documents specifically state that primary residences were not taken as collateral, even if used for business purposes.
While it’s always wise to double-check your loan agreement, I have yet to come across a borrower who actually pledged their home.
Will the SBA Sue You for Defaulting? Not Likely (For Now)
At this time, the SBA is not suing borrowers who default on their EIDL loans, except in cases of fraud. Instead, the worst consequence for defaulting is referral to the Treasury Offset Program (TOP), which allows the government to:
- Garnish wages (for W-2 employees).
- Seize tax refunds.
- Offset Social Security benefits (up to 15%).
That said, the SBA temporarily paused Treasury referrals in 2024. As of now, there is no confirmed timeline for when they’ll resume.
Still No Offer in Compromise for EIDL Loans
Many borrowers ask whether they can settle their EIDL loan through an Offer in Compromise (OIC). While OIC is available for SBA 7(a) loans, there is still no OIC program for EIDL loans.
If the SBA ever begins approving OIC requests, I will update everyone immediately. For now, be wary of anyone claiming they’ve successfully settled an EIDL loan through an OIC—because I have yet to see proof that it’s happening.
The Best Way to Sell Your Business? Asset Sale Over Entity Sale
If you’re looking to sell your business, an asset sale is usually the best approach. Here’s why:
- If you try to sell the entire business entity, the SBA will require full repayment of the loan.
- If you instead sell only business assets (with SBA approval), the SBA will let you proceed without demanding full repayment.
- This approach reduces your outstanding loan balance while keeping you compliant with SBA regulations.
However, even if you successfully sell your business assets, this does not remove your personal liability if you had a personal guarantee.
What’s Still Unknown?
Here are some lingering questions that borrowers—and I—are waiting to get answers on:
1. When Will the SBA Start Referring Loans to Treasury Again?
The SBA originally stated they could hold loans for up to two years before sending them to Treasury. However, “up to two years” could mean anywhere between zero and two years. Until we see confirmed referrals happening, it’s unclear how long borrowers have before facing Treasury collection efforts.
2. Will the SBA Sell EIDL Loans to Third-Party Collectors?
There has been speculation that the SBA might sell defaulted EIDL loans to third-party debt collectors, which would change how aggressively they’re pursued. While Treasury already contracts out collections to agencies like Pioneer Credit, this is not the same as selling the debt outright. Selling to private collectors would give them the right to enforce repayment as they see fit—including lawsuits.
For now, this remains unconfirmed, but it’s something to watch closely.
3. Could the New SBA Leadership Implement EIDL Forgiveness?
With a new administration in place, many borrowers are wondering if EIDL loans will be forgiven. While widespread forgiveness seems unlikely, it’s possible that the new SBA leadership may implement limited Offer in Compromise options for extreme hardship cases.
However, based on political trends, Republican administrations have historically opposed widespread debt forgiveness (as seen with student loans). If history repeats itself, we shouldn’t count on EIDL forgiveness happening anytime soon.
Final Thoughts
To summarize:
- Selling business assets? Get SBA approval first.
- Personal guarantees? You probably can’t remove them unless you pay off the loan or file for bankruptcy.
- Home collateral? Unlikely to be an issue.
- Lawsuits? Not happening (except in fraud cases).
- Treasury referrals? Still on pause, but could resume anytime.
- Offer in Compromise? Not available yet.
I’ll continue monitoring the situation and updating you as new information becomes available. If you need personalized guidance, time with Jason Milleisen, founder of Distressed Loan Advisors here.
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Thanks for checking in—I’ll see you in the next update!