My Business Closed: Am I Still Liable for the EIDL Loan?
So your business didn’t make it. After struggling through the pandemic, dealing with supply chain issues, losing customers, or just facing market conditions that made it impossible to continue, you’ve made the difficult decision to close your doors. You’ve liquidated inventory, terminated employees, canceled the lease, and shut down operations. But there’s one problem that didn’t go away when you turned off the lights: you still owe $75,000 (or $150,000, or $350,000) on the COVID-19 EIDL loan you took out back in 2020 or 2021. Now that the business is closed, your wondering: am I still personally liable for this debt? Can the SBA come after me individually even though the business doesn’t exist anymore? What happens if I just walk away from the loan now that there’s no business to collect from? The answers to these questions depend heavily on how much you borrowed, whether you signed a personal guarantee, and what assets the SBA can reach to collect the debt.
Here’s what you need to know right up front: **Closing your business does NOT automatically eliminate your obligation to repay the EIDL loan**. The debt doesn’t disappear just because the business ceased operations. Whether the SBA can pursue YOU personally for the debt depends primarily on the size of your loan and whether you signed a personal guarantee. If you borrowed less than $25,000, you likely have no personal liability because these smaller loans were unsecured and didn’t require personal guarantees—the SBA’s collection options are extremely limited. If you borrowed between $25,000 and $200,000, the loan was secured by business assets (equipment, inventory, receivables), but generally did NOT require a personal guarantee, which means your personal assets are usually protected. But if you borrowed more than $200,000, you almost certainly signed a personal guarantee, which means you ARE personally liable for the full amount even after the business closes, and the SBA can pursue your personal assets, wages, bank accounts, and even place liens on your home to collect the debt.
This article explains what happens to EIDL loan obligations when a business closes, how liability differs based on loan amount, what a personal guarantee means for your personal finances, what collection actions the SBA can take against closed businesses and individual guarantors, whether bankruptcy can eliminate EIDL debt, and what you should do if you’ve closed or are planning to close your business while still owing on an EIDL loan. If your facing this situation, understanding your actual legal liability is critical to making informed decisions about how to handle the debt and protect yourself from aggressive collection actions.
Does Closing My Business Eliminate the EIDL Loan Obligation?
No. Closing your business—whether you formally dissolved the entity or just stopped operating—does not eliminate the debt you owe to the SBA. EIDL loans are federal debts, and the SBA’s loan documents make clear that the obligation to repay continues regardless of whether the business is still operating. The loan agreement you signed didn’t include a clause that says “debt is forgiven if business fails”—it’s a binding contract to repay the principal plus interest over 30 years, and that obligation survives business closure.
What DOES matter when you close the business is WHO remains liable for the debt and WHAT assets the SBA can pursue to collect. If the business entity itself was the only borrower (which would be the case for loans under $200,000 that didn’t require personal guarantees), the SBA’s collection efforts are limited to whatever assets the business entity owns. If the business has been dissolved and has no remaining assets, the SBA has very little to collect from—but that doesn’t mean the debt is legally eliminated, it just means collection is impractical. However, if YOU signed a personal guarantee (required for loans over $200,000), then YOU remain personally liable for the full debt amount even after the business closes, and the SBA can pursue YOUR personal assets to collect what’s owed. The debt didn’t disappear—it just shifted from the defunct business entity to you as an individual guarantor.
The SBA is a federal agency, and federal debts are among the most difficult debts to escape. Unlike private commercial loans where a lender might write off uncollectible debt after a business closes, the federal government has extraordinary collection powers that don’t expire for decades. The SBA can refer unpaid EIDL loans to the Treasury Department’s Bureau of the Fiscal Service for aggressive collection, which can include wage garnishment, Social Security offset, tax refund seizure, and reporting to credit bureaus—and these collection efforts can continue for up to 10 years or more. So even if you think “there’s nothing left to collect,” the federal government has tools that can reach income and assets you might not have anticipated.
How Liability Differs Based on Loan Amount
The SBA structured EIDL loans differently based on the amount borrowed, with different security requirements and personal guarantee requirements at different thresholds. Understanding which category your loan falls into is critical to understanding your liability after business closure:
EIDL loans under $25,000 (unsecured, no personal guarantee required): If you borrowed less than $25,000, your loan was unsecured, meaning the SBA didn’t require collateral or a personal guarantee. These loans were made solely to the business entity. When you close the business, the SBA’s collection options are extremely limited because there’s no personal guarantee making you individually liable and no collateral to seize. The SBA can pursue the business entity’s assets (if any remain), and they can offset certain federal payments (like future tax refunds owed to the business entity), but they generally CANNOT pursue your personal assets, garnish your personal wages, or seize your home. If the business has been formally dissolved and has no assets, there’s very little the SBA can practically collect. However, the debt still legally exists, and if you ever revive the business or if the SBA discovers business assets you didn’t disclose, they can pursue collection.
EIDL loans between $25,000 and $200,000 (secured by business collateral, generally no personal guarantee): If you borrowed between $25,000 and $200,000, the SBA required that the loan be secured by business assets—equipment, inventory, accounts receivable, or other business property. However, personal guarantees were generally NOT required for loans in this range (though there were some exceptions depending on when you applied and your specific circumstances—you should check your actual loan documents to confirm). When you close the business, the SBA has the right to seize and liquidate whatever business collateral was pledged to partially satisfy the debt. If the business owned equipment worth $30,000 and you owe $75,000, the SBA can seize the equipment, sell it, apply the proceeds to your loan balance, and you’d still owe approximately $45,000 (plus accumulated interest). But if you didn’t sign a personal guarantee, the SBA generally cannot pursue YOUR personal assets to collect the remaining balance—their collection is limited to the business entity and whatever it owns. Once the business is dissolved and its assets liquidated, there’s little left to pursue.
EIDL loans over $200,000 (secured by business collateral AND personal guarantee required): If you borrowed more than $200,000, the SBA required both business collateral AND a personal guarantee from anyone owning 20% or more of the business. The personal guarantee is a separate legal document (SBA Form 2162 or similar) where you personally agreed to repay the full loan amount if the business cannot. This personal guarantee survives business closure and makes YOU individually liable for the entire debt. When you close the business, the SBA will first pursue business assets and collateral, but they are NOT limited to those—they can also pursue your personal assets, including your personal bank accounts, wages, investment accounts, real estate, and other property. The personal guarantee essentially converted what would have been a business-only debt into a personal debt that follows you even after the business no longer exists. If you signed a personal guarantee and you close the business with $250,000 still owing, YOU owe $250,000 personally, and the SBA has the full range of federal collection tools to pursue you individually.
To determine your situation, locate your original EIDL loan documents (available through the MySBA Loan Portal) and check: What was the original loan amount? Did you sign SBA Form 2162 (Personal Guarantee) or a similar document? What collateral was listed in the loan agreement? The answers to these questions determine whether your liability is limited to defunct business assets or extends to your personal finances.
What Is a Personal Guarantee and What Does It Mean After Business Closure?
A personal guarantee is a legal promise that YOU will repay a debt if the primary borrower (your business entity) cannot. It’s a separate contract between you and the SBA that makes you a co-obligor on the debt. When you sign a personal guarantee, you’re essentially telling the SBA: “If my LLC (or corporation, or partnership) can’t pay this loan, I personally will pay it from my own assets and income.” This guarantee doesn’t expire when the business closes—it continues until the debt is fully repaid or legally discharged (such as through bankruptcy).
For EIDL loans over $200,000, personal guarantees were required from all individuals owning 20% or more of the business. The SBA used SBA Form 2162 (Unconditional Guarantee), which is about as borrower-unfriendly as personal guarantees get. It’s called “unconditional” because it waives most defenses you might otherwise have—you can’t argue that the SBA failed to first pursue business assets, you can’t claim the SBA should have collected from other guarantors first, you can’t argue that the business’s failure wasn’t your fault. You guaranteed the debt unconditionally, which means the SBA can pursue you personally for the full amount at any time after default, regardless of what happened to the business or what other collection options exist.
What does this mean practically after business closure? It means that when your business closes and stops making payments, the SBA can immediately begin collection actions against YOU personally. They don’t have to wait. They don’t have to exhaust business assets first. They don’t have to prove you did anything wrong. You signed the guarantee, the business defaulted, and now the debt is YOUR personal debt. The SBA can garnish your wages (up to 15% of disposable income through Administrative Wage Garnishment), seize your bank account funds through levy, place liens on your home or other real estate you own, offset your tax refunds, offset Social Security payments in some cases, and report the debt to credit bureaus (destroying your personal credit score). All of this can happen even though the business that borrowed the money no longer exists.
If you didn’t sign a personal guarantee (which would be the case for most loans under $200,000), you have significant protection—the SBA’s collection efforts are limited to the business entity and its assets, and your personal finances are generally beyond their reach. But if you DID sign a personal guarantee, closing the business doesn’t protect you at all—you’re personally on the hook for every dollar that remains unpaid.
What Collection Actions Can the SBA Take After I Close My Business?
The SBA’s collection options depend on whether you signed a personal guarantee and whether the loan has been referred to the Treasury Department for collection. Here’s what can happen:
If you did NOT sign a personal guarantee (loans under $200,000 generally): The SBA’s collection is limited to the business entity and whatever assets it owns or owned. They can seize business collateral (equipment, inventory, receivables) that was pledged as security for the loan. They can pursue the business’s bank accounts if any funds remain. They can offset federal payments owed to the business entity (such as future tax refunds). They can sue the business entity for the unpaid balance and obtain a judgment, though if the business is dissolved and has no assets, a judgment is largely symbolic. What they generally CANNOT do if there’s no personal guarantee: garnish your personal wages, seize your personal bank accounts, place liens on your personal residence, or pursue your personal assets. Your personal finances are separated from the defunct business entity by the corporate veil, and without a personal guarantee, the SBA typically can’t pierce that veil just because the business failed.
If you DID sign a personal guarantee (loans over $200,000): The SBA has the full range of federal collection tools available to pursue you personally. These include Administrative Wage Garnishment (AWG), where up to 15% of your disposable wages are seized directly from your paycheck without needing a court judgment first. Federal tax refund offset through the Treasury Offset Program, where your IRS refunds are intercepted and applied to the EIDL debt. Bank account levy, where the SBA can freeze and seize funds in your personal bank accounts. Liens on real property, where the SBA records a judgment lien against your home or other real estate, which must be satisfied before you can sell or refinance the property. Credit reporting, where the defaulted debt appears on your personal credit report, devastating your credit score and making it nearly impossible to obtain new credit. And in extreme cases, the SBA can refer the debt to the Department of Justice for litigation, which could result in additional legal fees and costs being added to what you owe.
The SBA typically doesn’t initiate the most aggressive collection actions immediately after you close the business. There’s a progression: First, you’ll receive letters and phone calls from the SBA’s servicing center trying to arrange repayment. If you don’t respond or can’t arrange payment, the loan is classified as in default (typically after 120 days of non-payment). After default, the SBA may refer the debt to the Treasury Department’s Bureau of the Fiscal Service for cross-servicing—this usually happens around 180 days of delinquency. Once Treasury takes over collection, they have broader and more aggressive tools, and that’s when you’ll start seeing wage garnishments, tax refund offsets, and other serious collection actions. The timeline from business closure to aggressive collection can be 6-12 months, but it WILL escalate if you don’t address the situation proactively.
Can Bankruptcy Eliminate EIDL Loan Debt?
Yes, EIDL loan debt can be discharged in bankruptcy, but the type of bankruptcy you file and your specific circumstances determine how the process works and what you’ll have to give up.
Chapter 7 bankruptcy (liquidation): In a Chapter 7 bankruptcy, your non-exempt assets are liquidated and the proceeds are distributed to creditors, and then remaining qualifying debts (including EIDL loans) are discharged. If you signed a personal guarantee on the EIDL loan, filing Chapter 7 can eliminate your personal liability for the debt. However, you’ll have to surrender non-exempt assets—the bankruptcy trustee will seize and sell property that isn’t protected by exemptions (like equity in your home beyond the homestead exemption, valuable vehicles, investment accounts, etc.) and use the proceeds to pay creditors including the SBA. If you have minimal assets and qualify for exemptions that protect most of what you own, Chapter 7 can be an effective way to eliminate EIDL debt. However, if you have significant assets, you might lose property you want to keep. Also, Chapter 7 remains on your credit report for 10 years and has serious consequences for your ability to obtain credit, employment in some fields, and professional licensing in some industries.
Chapter 13 bankruptcy (repayment plan): In a Chapter 13 bankruptcy, you propose a 3-5 year repayment plan where you pay a portion of your debts based on your disposable income, and then remaining balances are discharged at the end of the plan. This allows you to keep assets that would be liquidated in Chapter 7, but you have to make monthly plan payments for years. For EIDL debt, the amount you’d have to repay through the Chapter 13 plan depends on your income, expenses, and what creditors would have received in a Chapter 7 liquidation. If you have sufficient income to fund a plan but want to keep assets like your home or vehicle, Chapter 13 can be a good option. At the end of the successful plan, any remaining EIDL balance is discharged, eliminating your liability.
Business bankruptcy (Chapter 7 or Chapter 11 for the entity): If your business is still a legal entity (not yet dissolved), you could file bankruptcy for the business itself. A business Chapter 7 liquidates the business and discharges the business’s debts—but if you signed a personal guarantee, this does NOT eliminate your personal liability. The business’s bankruptcy discharges the business’s obligation, but your personal guarantee is a separate contract between you and the SBA, and it survives the business’s bankruptcy. So business bankruptcy alone typically doesn’t help if you personally guaranteed the loan—you’d also need to file personal bankruptcy to eliminate your liability. However, if you did NOT sign a personal guarantee, having the business file bankruptcy can effectively end the SBA’s collection efforts because there’s no entity left to pursue and no personal guarantor.
Before filing bankruptcy, consult with a bankruptcy attorney experienced in SBA debt. Bankruptcy has serious long-term consequences and costs (attorney fees for a Chapter 7 might be $1,500-$3,000; for a Chapter 13 might be $3,500-$6,000 depending on complexity), but it can be the right solution if you have substantial EIDL debt that you genuinely cannot repay and the SBA is pursuing aggressive collection. An attorney can evaluate whether you qualify for Chapter 7 (based on the means test), whether you have assets that would be seized, whether Chapter 13 is more appropriate, and whether bankruptcy is even necessary or if other options like settlement might work.
What About Offers in Compromise? Can I Settle the EIDL Debt for Less?
An Offer in Compromise (OIC) is a settlement where you propose to pay less than the full amount owed to resolve the debt. The SBA historically offered OIC programs for defaulted loans, but the availability and requirements for EIDL loan offers in compromise have changed significantly and there’s conflicting information about whether they’re currently available.
As of early 2025, there are reports that the SBA has severely restricted or ended the offer in compromise program for EIDL loans. Some borrowers report that the SBA is no longer accepting new OIC applications for EIDL debt, while others report that OIC is still available but with much stricter requirements than in the past. The confusion stems from the SBA’s shifting policies on pandemic-era loan relief programs—many accommodations that existed in 2023-2024 have been scaled back or eliminated as the government moves away from pandemic-related forbearance.
If OIC is still available for your EIDL loan, here’s how it typically works: You must demonstrate that you cannot repay the full loan amount based on your current financial situation. This requires providing comprehensive financial disclosure (bank statements, tax returns, asset valuations, income and expense statements) to prove inability to pay. The SBA calculates your Reasonable Collection Potential (RCP)—essentially what they could realistically collect from you through wage garnishment, asset seizure, and other means over the next few years. Your OIC offer must generally be at least equal to your RCP for the SBA to consider it—they won’t accept less than what they believe they can collect through forced collection. The SBA will typically require that your business be closed (not just struggling—actually dissolved and no longer operating) because they won’t settle a debt for less when the business might recover and be able to repay in full. If your offer is accepted, you pay the settlement amount (often in a lump sum or short-term payment plan), and the remaining balance is forgiven. However, the forgiven amount may be taxable as cancellation of debt income under IRS rules, which can create a surprise tax bill.
The challenge is that even when OIC was readily available, the SBA’s acceptance rate was relatively low—historically around 35-40% of submitted offers were accepted. The SBA is under no obligation to settle, and if they believe they can collect more through aggressive collection than you’re offering, they’ll reject the offer and pursue collection. And if OIC is no longer available or has been severely restricted for EIDL loans (as some recent reports suggest), you may not have this option at all.
If you’re interested in pursuing an OIC, contact the SBA’s EIDL servicing center directly to ask whether OIC is currently available for your loan and what the requirements are. Get the answer in writing if possible. If OIC isn’t available or if your financial situation doesn’t support a realistic offer, bankruptcy may be the more viable path to resolving the debt.
What Should I Do If I’ve Closed My Business and Still Owe on the EIDL Loan?
If you’ve already closed your business (or are planning to close) and you still have a substantial EIDL balance, here’s what you should do to protect yourself and address the debt:
Step 1: Determine your exact liability. Locate your EIDL loan documents through the MySBA Loan Portal and check: What was the original loan amount? Did you sign a personal guarantee (SBA Form 2162 or similar)? What collateral was pledged? What’s the current balance owed? Understanding whether you have personal liability or if the debt is limited to the defunct business entity is the first critical piece of information you need.
Step 2: If you did NOT sign a personal guarantee, understand the limited collection risk. If there’s no personal guarantee and the business is closed with no remaining assets, the SBA’s practical ability to collect is very limited. They can pursue whatever business assets exist, but they generally can’t reach your personal finances. You might choose to let the business entity take the hit while your personal credit and assets remain protected. However, don’t assume you’re completely safe—verify that there truly was no personal guarantee, because if you’re wrong and one exists, you’ll face serious collection actions.
Step 3: If you DID sign a personal guarantee, act immediately to address the debt. Don’t ignore it hoping it will go away—it won’t, and the SBA’s collection powers are extensive. Contact the SBA servicing center to discuss your options. Be honest about your financial situation: the business has closed, you can’t afford to repay the full amount, and you want to explore options. Ask whether offer in compromise is available, whether extended repayment terms are possible, whether there’s any forbearance or hardship accommodation available (though many such programs have ended as of 2025). Get information about what your options actually are before the debt goes into default and collection becomes aggressive.
Step 4: Consult with a bankruptcy attorney if the debt is unmanageable. If you owe a substantial amount (say, $100,000+), you personally guaranteed the loan, the business has failed and you have no way to repay, and the SBA isn’t offering acceptable settlement terms, bankruptcy may be your or only realistic option. A bankruptcy attorney can evaluate whether you qualify for Chapter 7, whether you have assets that would be seized, whether Chapter 13 makes more sense, and what the process and costs would be. Many bankruptcy attorneys offer free initial consultations where they can assess your situation and advise whether bankruptcy is appropriate.
Step 5: Don’t make partial payments you can’t sustain. If you’ve closed the business and personally guaranteed the loan, you might feel obligated to keep making payments even though it’s financially devastating. But if you’re just delaying the inevitable—if there’s no realistic way you’ll ever pay off a $200,000 debt on your current income—making token payments doesn’t help and might actually hurt by depleting resources you’ll need for bankruptcy filing fees or living expenses. If the debt is genuinely unmanageable, it’s better to stop paying, consult with an attorney immediately, and pursue bankruptcy or settlement rather than throwing good money after bad for months while your situation deteriorates.
Step 6: Protect assets while you can (legally). If you know collection is coming because you personally guaranteed the loan, don’t engage in fraudulent transfers—moving assets out of your name to hide them from creditors can result in those transfers being unwound and can even result in criminal fraud charges. But you CAN take legal steps to protect assets, such as maximizing contributions to retirement accounts (which are often protected in bankruptcy), ensuring you’re claiming appropriate exemptions, and restructuring finances in legitimate ways. A bankruptcy or asset protection attorney can advise on legal steps you can take—don’t try to do this yourself because the line between legal asset protection and fraudulent transfer is nuanced and the consequences of getting it wrong are severe.
Talk to an SBA Debt Attorney Today
Closing your business doesn’t close the book on EIDL loan liability, especially if you signed a personal guarantee. The SBA has powerful collection tools and the legal authority to pursue you for years or even decades if the debt remains unpaid. But you’re not without options—bankruptcy can eliminate the debt, settlement might be available, and in some cases the SBA’s practical ability to collect is limited even if the legal debt remains.
Our firm helps business owners navigate EIDL debt after business closure. We determine whether you have personal liability based on your loan documents, we negotiate with the SBA on repayment arrangements or offers in compromise when available, we represent clients in bankruptcy proceedings to discharge SBA debt, we challenge improper collection actions, and we protect clients from aggressive collection tactics. We understand the unique rules governing federal SBA debt and the options available to borrowers who can no longer operate their businesses.
If you’ve closed your business and you’re facing EIDL debt that you can’t repay, contact us today for a free consultation. We’ll review your loan documents to determine your actual liability, explain what collection actions the SBA can take against you personally, evaluate whether bankruptcy makes sense for your situation, assess whether settlement is possible, and advise on the strategy to resolve the debt and protect your financial future. The consultation is free and confidential, but it could be the difference between getting crushed by federal debt collection and finding a legal path to eliminate or reduce your liability.
The business might be closed, but the debt isn’t gone. Call us now to explore your options.