Can’t Afford to Repay My EIDL Loan: What Are My Options?

So your staring at your EIDL loan payment notice, and the reality is sinking in: you can’t afford to make these payments. Maybe your business never fully recovered from the pandemic, or maybe you’ve hit new financial difficulties, or maybe the loan just seemed manageable when you got it but now the payments are crushing your cash flow. Whatever the reason, your facing a situation where the monthly EIDL payment is money you simply don’t have, and your wondering what happens now. Do you just stop paying and hope for the ? Do you have options for reducing the payments or settling the debt? Will the SBA come after you personally, garnish wages, or seize assets? The stress and uncertainty are overwhelming.

The first thing you need to understand is that EIDL loans are federal debt with serious consequences for default, but there ARE options available for borrowers experiencing financial hardship. The SBA isn’t eager to push struggling businesses into bankruptcy or to pursue aggressive collection actions against borrowers who proactively communicate and work toward solutions. They’d rather work with you on modified payment arrangements, hardship accommodations, or settlement offers than spend years and significant resources trying to collect through garnishments and liens. However, to access these options, you need to act—ignoring the problem and just stopping payments without communicating with the SBA is the worst strategy and leads to the harshest consequences.

This article explains everything you need to know if you can’t afford to repay your EIDL loan. We’ll cover the immediate steps you should take, the hardship accommodation programs the SBA offers (including reduced payment plans), how to negotiate an offer in compromise to settle the debt for less than you owe, what happens if you default on the loan, whether you’ll be personally liable if your business closes, the SBA’s collection powers (wage garnishment, tax refund offset, liens), whether bankruptcy can discharge EIDL debt, and when you should hire an attorney to help navigate these options. We’ll also address the critical distinction between EIDL loans under $200,000 (which typically don’t have personal guarantees) and loans over $200,000 (which do), because this affects your personal liability significantly. If your struggling to make your EIDL payments, read this entire article carefully—understanding your options is the first step to finding a solution that avoids the worst outcomes.

What Should I Do Right Now If I Can’t Make My EIDL Payments?

If you’re already behind on payments or you know you won’t be able to make future payments, take these immediate steps:

Step 1: Contact the SBA immediately. As soon as you anticipate difficulty making loan payments, contact the SBA or the COVID EIDL Servicing Center. Don’t wait until you’re months behind—contact them as soon as you realize there’s a problem. You can reach them through the MySBA Loan Portal or by emailing COVIDEIDLServicing@sba.gov. Explain your situation: your business has experienced financial hardship, you can’t afford the current payment amount, and you want to explore options for modified repayment arrangements or hardship accommodations. The sooner you communicate your challenges, the more options you may have available.

Step 2: Gather your financial information. The SBA will want to understand your financial situation to determine what assistance you qualify for. Prepare recent business financial statements (profit and loss, balance sheet), personal financial statements if your personally guaranteed the loan, tax returns for the last 1-2 years, bank statements, and documentation of your income and expenses. Having this information ready speeds up the process of applying for hardship accommodations or payment modifications.

Step 3: Continue making whatever payments you can. Even if you can’t make the full payment, make partial payments if possible. This demonstrates good faith and shows you’re trying to meet your obligations despite financial difficulties. The SBA views borrowers who stop paying entirely with no communication much more negatively than borrowers who make reduced payments while working toward a solution.

Step 4: Don’t ignore SBA communications. If the SBA sends you letters, emails, or notices about your loan, respond to them. Ignoring communications doesn’t make the debt go away and signals to the SBA that your not interested in working cooperatively toward a solution. That makes them more likely to escalate to aggressive collection actions.

Step 5: Explore all available options before giving up. As we’ll discuss in detail below, there are multiple options for borrowers who can’t afford repayment—reduced payment plans, extended repayment terms, offers in compromise, and other accommodations. Don’t assume there’s nothing you can do. Many borrowers who thought they had no options discovered that the SBA was willing to work with them when they proactively engaged.

What Hardship Accommodation Programs Does the SBA Offer?

The SBA has offered various hardship accommodation programs for COVID EIDL borrowers experiencing financial difficulties. However, it’s important to note that as of March 2025, some of these programs may have changed or ended. Here’s what has been available:

Short-term 50% payment reduction. The SBA has allowed eligible COVID EIDL borrowers to reduce there monthly payments by 50% for six months. To apply, borrowers request this through the MySBA Loan Portal. Eligible borrowers can take advantage of this program once every five years. During this period, you make half your normal payment, which provides immediate cash flow relief. However, interest continues to accrue on the full loan balance during the reduction period, so you’re not reducing what you owe long-term—you’re just getting short-term payment relief.

This option makes sense if your experiencing a temporary cash flow problem but expect your business to recover within six months. It gives you breathing room to stabilize your finances without defaulting on the loan. However, if your financial problems are long-term or permanent, a six-month payment reduction just delays the inevitable rather than solving the underlying problem.

Hardship Accommodation Plan (HAP). The SBA previously offered a Hardship Accommodation Plan for EIDL borrowers experiencing significant financial hardship. Under HAP, borrowers could receive accommodations in six-month periods, with the first six months requiring payments of only 10% of what they owed, and they didn’t need to catch up on missed payments first before qualifying. However, reports indicate that as of March 19, 2025, the SBA officially ended the Hardship Accommodation Plan for EIDL borrowers. This means there’s no longer a structured program for dramatically reducing monthly payments through the SBA.

If you heard about HAP and were planning to apply for it, check with the SBA about its current status. The program may have been replaced with different accommodations, or there may be case-by-case hardship relief available even without a formal program. Don’t assume HAP is available without confirming, but also don’t assume there are NO hardship options just because HAP ended—ask the SBA what accommodations currently exist for borrowers in financial distress.

Extended repayment terms. Even if formal hardship programs aren’t available, the SBA has discretion to modify loan terms for borrowers experiencing difficulties. You can request an extension of your repayment period, which reduces your monthly payment by spreading the debt over more years. For example, if your EIDL loan has a 30-year term but you got it in 2020 and can’t afford the current payments, the SBA might agree to re-amortize the remaining balance over an even longer period, reducing the monthly amount. This doesn’t reduce what you owe, but it makes the payments more manageable.

Payment deferment. In some cases of severe hardship—for example, if your business has temporarily ceased operations due to a disaster or emergency—the SBA might agree to temporarily defer payments (pause them completely) for a period, with payments resuming later. Interest typically continues accruing during deferment, so you’re not reducing the debt, just postponing when you have to pay. But deferment can provide crucial relief if you’re facing a temporary crisis and need time to recover before resuming payments.

Can I Settle My EIDL Loan for Less Than I Owe?

Yes, through a process called an offer in compromise (OIC). An offer in compromise allows you to propose settling your EIDL debt for less than the full amount you owe. The SBA will consider accepting a reduced amount if they determine that’s the most they can realistically collect from you based on your financial situation.

How offers in compromise work: You submit a formal OIC proposal to the SBA explaining why you can’t repay the full debt and proposing a lump sum or payment plan for a reduced amount. The SBA evaluates your “reasonable collection potential”—essentially, what could they collect from you if they pursued you to the full extent of there collection authority (garnishing wages, seizing assets, offsetting tax refunds, etc.) over a reasonable period. If your offer approximates or exceeds what they could collect through those methods, they’ll consider accepting it because getting something now is better than spending years and significant resources trying to collect incrementally.

What you need to demonstrate: To get an OIC accepted, you need to show that you lack the assets and income to repay the full amount. This requires comprehensive financial disclosures—personal financial statements, business financial statements if the business still exists, tax returns, bank statements, asset valuations, income documentation, and detailed expenses. You’re essentially proving that you’re financially unable to repay the debt in full and that the offered amount represents the maximum realistic recovery for the SBA.

Requirements for SBA EIDL OICs: For EIDL loans, the SBA typically requires that your business has ceased operations and that you’ve liquidated all non-exempt business assets before they’ll consider an OIC. If your business is still operating, the SBA will generally expect you to continue making payments or to close the business and liquidate assets first. This is a significant requirement—accepting an OIC might mean closing your business, which has major implications for your livelihood beyond just the loan debt.

Success rates and amounts: Reports suggest that the success rate for EIDL offers in compromise is around 35%—meaning about one-third of submitted OICs are accepted. The accepted settlement amounts vary widely based on individual financial circumstances, but they’re typically significantly less than the full debt. For example, someone owing $150,000 who has limited income, few assets, and no realistic ability to repay might settle for $20,000-$40,000. The exact amount depends on what the SBA calculates as your reasonable collection potential.

How long the process takes: OIC negotiations can take many months. The SBA has to review your financial disclosures, possibly request additional information, calculate what they could collect through enforcement, and decide whether to accept your offer. During this negotiation period, collection actions are typically suspended, giving you relief from payment demands. But there’s no guarantee the OIC will be accepted, and if it’s rejected, you’re back to facing the full debt.

What Happens If I Default on My EIDL Loan?

If you stop making payments on your EIDL loan without working out an accommodation with the SBA, you’re in default, which triggers a series of consequences:

Immediate consequences: The SBA will send you demand letters and notices about the default, typically giving you opportunities to cure the default by making payments or contacting them to work out arrangements. You’ll start accruing additional penalties and fees on top of the interest. Your default will be reported to credit bureaus, damaging your credit score significantly. If your business has any federal contracts or applications for other federal programs, the default can affect your eligibility.

Referral to Treasury for collection: After you’ve been in default for a period (typically several months), the SBA refers the debt to the Department of the Treasury’s Bureau of the Fiscal Service for collection. At this point, you’re dealing with the federal government’s centralized collection system, which has extensive powers:

• Tax refund offset: The Treasury will intercept your federal tax refunds and apply them to the EIDL debt. If you normally get a $5,000 refund, you’ll get nothing—it goes straight to paying down the loan.
• Administrative wage garnishment: The government can garnish up to 15% of your disposable income directly from your paycheck without going to court first. They just notify your employer and start taking money. This is an administrative process, not a judicial one.
• Federal payment offset: If you receive any federal payments—Social Security benefits (in some cases), federal contractor payments, federal employee salary, etc.—those can be offset to pay the debt.
• Credit reporting: The default gets reported to all major credit bureaus, destroying your credit score and making it nearly impossible to get credit cards, car loans, mortgages, or even rent apartments.

Litigation and judgment: The Department of Justice can file a lawsuit against you to obtain a judgment for the debt. Once they have a judgment, they can use state law collection remedies—levy bank accounts, place liens on your property, seize assets. A judgment also extends the time they have to collect (judgments can be renewed and can last decades).

Personal liability issues: Whether you’re personally liable for an EIDL loan in default depends on whether you signed a personal guarantee. For EIDL loans of $200,000 or less, personal guarantees were not required. For loans over $200,000, owners with 20% or more ownership were required to provide personal guarantees. If you personally guaranteed the loan, the SBA can pursue you personally for the debt even if your business closed or filed bankruptcy. If you didn’t personally guarantee it, the SBA’s collection efforts are generally limited to business assets (though they might still try to collect from you personally, and you’d need to assert the lack of personal guarantee as a defense).

If My Business Closes, Am I Still Liable for the EIDL Loan?

This depends entirely on whether you personally guaranteed the loan:

EIDL loans of $200,000 or less (no personal guarantee): If your EIDL loan was $200,000 or less, personal guarantees were not required. This means the loan obligation technically belongs to the business entity, not to you personally. If your business closes and has no assets, the SBA’s ability to collect is limited. You can legally close the business, and while the SBA might still try to collect the debt, there are no business assets to pursue and no personal guarantee making you liable. Your personal assets—your house, your personal bank accounts, your wages from other employment—are generally protected.

However, there’s a caveat: if you operated your business as a sole proprietorship rather than as a separate legal entity (LLC or corporation), there’s no legal separation between you and the business, which means you’re personally liable regardless of whether there’s a formal personal guarantee. Sole proprietors are the business, so business debts are personal debts. Additionally, if you took actions that “pierce the corporate veil”—commingling personal and business funds, failing to maintain corporate formalities, using the business as your personal piggy bank—the SBA might argue that the corporate form should be disregarded and you should be held personally liable.

EIDL loans over $200,000 (personal guarantee required): If your EIDL loan was over $200,000, you (and any other owner with 20% or more ownership) had to sign a personal guarantee. This makes you personally liable for the full debt. Even if your business closes, files bankruptcy, or has no assets, the SBA can pursue you personally. They can garnish your personal wages, levy your personal bank accounts, place liens on your personal property, and seize personal assets to satisfy the debt. Your personal financial situation becomes relevant, not just the business’s situation.

If you personally guaranteed the loan and your business has closed but you can’t repay the debt personally, your options are limited to negotiating an offer in compromise based on your personal financial situation, requesting hardship accommodations based on personal income, or potentially filing personal bankruptcy (though that has major consequences and doesn’t always discharge the debt).

Can Bankruptcy Discharge My EIDL Loan Debt?

Potentially, but it’s complicated. EIDL loans are SBA disaster loans, and there’s been legal debate about whether they can be discharged in bankruptcy. Here’s what you need to know:

Business bankruptcy (Chapter 7 or Chapter 11): If your business files bankruptcy, the EIDL loan debt can be discharged as part of the bankruptcy. However, if you personally guaranteed the loan, discharging the business’s obligation doesn’t eliminate your personal liability—the SBA can still come after you personally under the guarantee. So business bankruptcy provides limited relief if you’re personally on the hook.

Personal bankruptcy (Chapter 7 or Chapter 13): Whether EIDL debt can be discharged in personal bankruptcy has been debated. Some courts have held that SBA disaster loans are difficult to discharge because they’re similar to government-backed student loans, which have strict discharge standards requiring proof of “undue hardship.” Other courts have treated EIDL loans as ordinary business debts that can be discharged like any other unsecured debt.

Recent case law suggests that EIDL loans CAN be discharged in personal bankruptcy without meeting the harsh “undue hardship” standard—they’re treated as ordinary business debts. However, this area of law is still developing, and outcomes can vary by jurisdiction. If you’re considering bankruptcy as a solution for EIDL debt, you absolutely need to consult with a bankruptcy attorney who’s familiar with how courts in your jurisdiction are treating EIDL loans.

Practical considerations: Bankruptcy has major consequences beyond just the EIDL debt—it affects your credit for 7-10 years, can impact your ability to own a business, affects professional licenses in some fields, and has social and emotional costs. Bankruptcy should be viewed as a last resort when other options (hardship accommodations, offers in compromise, repayment plans) aren’t viable. But if you’re drowning in debt from multiple sources and the EIDL loan is just one part of a larger financial crisis, bankruptcy might be the most practical solution for a fresh start.

Should I Just Let My Business Close and Walk Away From the EIDL Loan?

For borrowers with EIDL loans under $200,000 who didn’t sign personal guarantees, the idea of just closing the business and walking away from the debt is tempting. And legally, if there’s no personal guarantee and you properly close the business entity, the SBA’s collection options are limited to whatever business assets exist (which might be nothing). However, there are important considerations:

Make sure there really is no personal guarantee. Verify that your loan documents don’t contain a personal guarantee. Just because your loan was under $200,000 doesn’t automatically mean there’s no guarantee—check your actual loan agreement. If there IS a personal guarantee and you walk away thinking your protected, you’ll be in for an unpleasant surprise when the SBA starts garnishing your personal wages.

Close the business entity properly. Just abandoning your business isn’t the same as properly closing it. You need to formally dissolve the entity with your state, file final tax returns, notify creditors, and follow proper dissolution procedures. If the entity remains legally active, the SBA might argue that you haven’t truly closed and that the business (and therefore the debt) still exists.

Consider the ethical and practical implications. Yes, from a purely legal standpoint, if there’s no personal guarantee you might be able to walk away from an EIDL loan under $200,000. But there are broader considerations: The loan was funded with taxpayer money intended to help businesses survive the pandemic. Walking away from a legitimate debt might feel morally questionable. Additionally, the default will damage your business credit, which could affect future business ventures. And if you ever need to deal with the SBA again for any reason, having a history of defaulting on an EIDL loan won’t help your case.

Explore other options first. Before deciding to close your business and walk away, explore whether offers in compromise, hardship accommodations, or modified repayment plans might work. If you can settle the debt for a reasonable amount that preserves your business and avoids the negative consequences of default, that’s probably preferable to just walking away.

If you’re seriously considering closing your business to avoid the EIDL debt, consult with an attorney first. They can verify whether you actually have personal liability, advise on proper closure procedures, explain the consequences, and help you understand whether it’s your option given your specific circumstances.

When Should I Hire an Attorney to Help With My EIDL Debt?

Many borrowers try to handle EIDL repayment issues on there own by working directly with the SBA, and that’s fine for straightforward situations—requesting payment reductions, applying for hardship accommodations through the portal, or negotiating simple repayment modifications. However, you should consider hiring an attorney if:

You’re negotiating an offer in compromise. OICs are complex and require detailed financial disclosures, legal arguments about reasonable collection potential, and negotiation skills. Attorneys experienced in SBA debt resolution know how to structure OIC proposals to maximize chances of acceptance and how to present your financial situation most persuasively.

The SBA has already referred your debt to Treasury or the Department of Justice. Once your debt is in aggressive collection mode, you’re dealing with government lawyers and collection agencies who know the rules inside and out. Having your own attorney levels the playing field and protects you from collection overreach or violations of your rights.

There are disputes about personal liability. If the SBA is trying to collect from you personally but you believe you’re not personally liable (no personal guarantee, loan under $200,000, etc.), you need an attorney to assert that defense properly and prevent wrongful personal collection actions.

You’re considering bankruptcy. Bankruptcy is complex and has major consequences. You need a bankruptcy attorney to evaluate whether it makes sense for your situation, how EIDL debt would be treated in your jurisdiction, and what other debts could be discharged along with it.

Large amounts are at stake. If you owe hundreds of thousands on your EIDL loan, the stakes justify spending money on legal representation to negotiate the possible outcome. Spending $10,000 on an attorney to settle a $300,000 debt for $50,000 is an excellent investment.

Many attorneys offer free consultations where you can explain your situation and get advice about whether hiring counsel makes sense. Even if you ultimately handle things yourself, a consultation can provide valuable information about your options and rights.

Talk to an SBA Debt Resolution Attorney Today

If you can’t afford to repay your EIDL loan, you’re not out of options. The SBA offers various hardship accommodations, modified repayment arrangements, and settlement possibilities for borrowers experiencing genuine financial difficulties. However, accessing these options requires proactive engagement with the SBA and often requires understanding complex regulations and negotiation strategies.

Our firm has extensive experience helping borrowers resolve EIDL debt issues. We’ve negotiated successful offers in compromise that settled six-figure debts for fractions of what was owed, obtained hardship accommodations for clients who couldn’t afford standard payments, challenged wrongful personal liability claims, and protected clients from aggressive collection actions. We understand the SBA’s procedures, the legal requirements for settlements and accommodations, and how to present your case most effectively.

If your struggling with your EIDL loan payments, don’t wait until your months behind and facing garnishments—contact us today for a free consultation. We’ll review your financial situation, explain what options are available in your specific circumstances, assess whether you have personal liability exposure, and advise on the strategy moving forward. The consultation is free and confidential, but it could save you tens or hundreds of thousands of dollars by helping you find a solution you didn’t know existed.

Don’t ignore the problem hoping it goes away. Call us now to explore your options while you still have them.