What happens to SBA EIDL Loan if Business closes?

Starting a business has its share of difficulties and unfortunately, not all endeavors are successful.

It’s crucial to know what happens to your loan if you have a Small firm Administration (SBA) Economic Injury Disaster Loan (EIDL) yet find yourself in the regrettable position of having to close your firm.

In this blog, we will explore the implications of closing your business while having an SBA EIDL loan and guide you through the necessary steps to navigate this situation.

What is SBA EIDL Loan?

What is SBA EIDL Loan

The EIDL program was established by SBA to provide financial assistance to small businesses affected by disasters or economic downturns.

This low-interest loan aims to help businesses recover and alleviate economic hardship.

Also See: Are Small Business Loans Installment Or Revolving?

These loans provide businesses with working capital to cover essential operating expenses, such as payroll, rent, utilities and other operational costs.

To be eligible for an SBA EIDL loan, businesses must meet specific criteria and provide supporting documentation.

The loan amount and terms vary based on the individual circumstances of the business.

Repayment of an SBA EIDL Loan

When you receive an SBA EIDL loan, it’s essential to carefully review the loan agreement and understand the repayment terms.

Typically, businesses are required to make monthly installments over a set period.

Timely repayment is very important to maintain a good credit history and avoid potential consequences such as penalties, additional fees, or legal action.

Early repayment options may also be available, allowing you to reduce the interest paid over the loan’s lifespan.

What happens to SBA EIDL Loan if Business closes?

If a business closes after obtaining a Small Business Administration (SBA) Economic Injury Disaster Loan (EIDL), the loan still needs to be repaid according to the terms agreed upon.

The closure of the business does not automatically eliminate the obligation to repay the loan.

The borrower is responsible for continuing to make loan payments until the loan is fully repaid.

Closing a Business and Its Impact on an SBA EIDL Loan

It’s important to notify the SBA of the closing of your company if circumstances compel you to do so.

There are several procedures involved in closing a firm, such as:

  • paying off debts,
  • selling off assets,
  • meeting legal requirements.

Communication with the SBA is essential during this process to ensure that you fulfill reporting requirements and adhere to any obligations related to the EIDL loan.

Handling an SBA EIDL Loan After Business Closure

1) Options for Repaying the Loan

If your business has sufficient assets, you may choose to use those assets to repay the EIDL loan.

Selling assets, settling accounts receivable or utilizing personal funds are possible ways to fulfill your repayment obligations.

2) Negotiating a Repayment Plan or Settlement

In some cases, businesses facing financial hardship after closure may negotiate a repayment plan or settlement with the SBA.

Exploring this option can provide flexibility and potentially alleviate the financial burden associated with the loan.

3) Consequences of Non-repayment

Failing to repay an SBA EIDL loan after business closure can have serious consequences.

The SBA may pursue legal action, employ debt collection agencies or report the delinquency to credit bureaus, which could impact your credit score and future financial endeavors.

How To Determine If Your EIDL Loan Is Forgivable?

Here are some key factors to consider in determining if your EIDL loan is forgivable:

Loan Advance

The EIDL program includes a loan advance component, also known as an EIDL grant. This advance does not require repayment, even if your application for an EIDL loan is subsequently denied or not accepted.

The grant amount is determined based on the number of employees and can be up to $10,000.

This portion of the loan does not need to be repaid and is effectively forgiven.

Economic Injury

EIDL loans are intended to assist small businesses that have suffered substantial economic injury.

To be eligible for forgiveness, you need to demonstrate that you have experienced economic hardship as a result of the declared disaster.

This can include factors such as:

  • revenue loss,
  • increased expenses, or
  • disruptions to business operations.

Repayment Terms

EIDL loans have a repayment period of up to 30 years, which allows for manageable monthly payments. While the loan may not be forgivable, the extended repayment period can help ease the financial burden on your business.


What is the EIDL loan?

The Economic Injury Disaster Loan (EIDL) is a low-interest loan program provided by the Small Business Administration (SBA) to help businesses recover from economic losses caused by disasters.

What if I lost my business and can’t pay back my SBA loan?

If you’re unable to repay your SBA loan due to losing your business, you should contact the SBA immediately to discuss options such as loan modification or deferment.

Is SBA going to forgive EIDL loans?

EIDL loans cannot be forgiven, although targeted EDIL advances, grants for operators of shuttered venues, and some other incentives associated with COVID may be.

What is the maximum EIDL loan amount?

The maximum Economic Injury Disaster Loan (EIDL) amount is $2 million for businesses and $500,000 for individuals

Can you refinance an EIDL loan?

If you have an EIDL loan, the SBA 7(a) lending program may allow you to refinance it.

Final Thoughts

The SBA EIDL loan program offers critical support to small businesses during times of economic hardship.

However, if circumstances force your business to close, it’s essential to proactively address your loan obligations.

By understanding:

  • the repayment options,
  • communicating with the SBA,
  • seeking professional advice and
  • exploring potential forgiveness or discharge avenues,

you can effectively manage your SBA EIDL loan and pave the way for a brighter financial future.

Remember, staying informed and taking action are key to navigating this process successfully.

Rate this post

Leave a Comment