Get Strategies and Solutions as These Small Business Loans Come Due
If you own a small business that received a Small Business Administration Economic Injury and Disaster loan (SBA EIDL) to support your business efforts during the COVID-19 pandemic, it’s very likely that you’ve already heard from the Capital Access Financial System (CAFS) – the site on which you made an account to monitor your loan – about your loan coming due.
Deferment on these loans was extended for up to 30 months in 2022 for all approved SBA loans in 2020, 2021, and 2022. This means that if you took out a loan in 2020 or 2021, it is likely that your loan has come due or is coming due very soon.
If your business has continued to struggle, you may be wondering how you can pay back this loan, especially if your finances cause significant challenges right now.
Wink & Wink’s team of bankruptcy lawyers monitor updates to legislation related to these EIDL loans, as well as the SBA’s enforcement policies and tactics and how they affect Colorado business owners – especially those in Denver. We are specifically dedicated to helping local businesses and community members through small business bankruptcy, debt settlement, personal bankruptcy, tax debt resolution, and more. That’s our role as Denver debt relief attorneys, and we take it very seriously.
How Wink & Wink Can Help You Find Debt Relief If You Have an EIDL Small Business Loan
Many Denver-area business owners have asked questions about these loans, concerned that they’re unable to pay them back. We understand your financial hardship and worry; just because businesses are “back to normal,” doesn’t mean that your business can afford to repay an EIDL loan during difficult economic times.
To provide some initial assistance, Wink & Wink’s team of Denver debt relief attorneys have answers to your frequently asked questions about small business bankruptcy and debt settlement related to these COVID-19-era loans.
Question: “If a small business files for bankruptcy, will that discharge my SBA EIDL loan?”
Wink & Wink’s Answer: If your business is an LLC or corporation, it is technically not eligible for a bankruptcy discharge. However, you may be able to restructure your SBA EIDL in such a way that you pay a fraction of it back in Subchapter 5 bankruptcy. This can be very effective, so long as your debt is not personally guaranteed. If your loan is over $200,000, it is personally guaranteed. In that case, the restructuring of the loan in your business’s Subchapter 5 does not protect you personally. The SBA can pursue collection from you for the portion of the EIDL that is not paid by your company. If this is the case, you could consider filing personal bankruptcy while your business files Subchapter 5 bankruptcy.
It is also possible for your business to file Chapter 7 bankruptcy. However, that will entail a liquidation of the company’s assets for its debt. Chapter 7 is not a viable bankruptcy option if you intend to keep operating your LLC or corporation. Similar to Subchapter 5, Chapter 7 for your LLC or corporation does not stop the SBA from pursuing collection against you personally for guaranteed loans in excess of $200,000. Because Chapter 7 doesn’t work for a business that is a going concern and doesn’t remove personal liability for guaranteed loans, it is a very limited option for your LLC or corporation. Typically, a business entity should only file Chapter 7 if and when creditors are fighting over the business assets and the owner doesn’t want to deal with sorting out competing creditor claims.
Assuming Chapter 7 is not right for you, and you no longer plan to operate your LLC or corporation, you can consider simply dissolving it. Because EIDL loans of $200,000 and smaller are not guaranteed, this may end the liability. However, it is important to know the SBA could attempt to establish personal liability against you for your company’s EIDL loan, even though it was not guaranteed. There are provisions in the loan documents which govern how the money should have been spent, and it is possible you could be held personally liable if the money wasn’t spent properly. Also, EIDL loans over $20,000 are secured, which means the SBA has a lien on the business assets. If you distribute those assets to yourself or someone else in violation of the SBA’s lien, it is also possible you could be personally liable for your company’s EIDL loan.
If you are considering putting your business in bankruptcy or otherwise not paying its EIDL loan, it’s important to contact bankruptcy lawyers for small businesses, such as those as Wink & Wink, so that you can get legal advice specific to your situation.
Our job as Denver debt relief attorneys is to find an outcome that works for you and your business, so that you can experience a new beginning for your business and your personal finances. We look forward to working with you, starting with a free consultation.
Question: “Can I discharge my personal liability for a guaranteed EIDL loan?”
Wink & Wink’s Answer: In general, your personal liability for an EIDL loan can be discharged in bankruptcy. This is relevant in cases in which you operate your business as a sole proprietor, or your LLC or corporation took out an EIDL loan in excess of $200,000. For sole proprietors, all business debt is personal debt because the business is the owner, and there is no separate legal entity such as a corporation. For EIDL loans in excess of $200,00, the SBA requires that loans of this size be personally guaranteed.
For a personally guaranteed loan, it is important to know that discharging that debt in personal bankruptcy does not remove your LLC or corporation’s liability for that debt. If you plan to continue operating your LLC or corporation, it will have to pay the EIDL loan or face collection from the SBA. In such a case, you could consider having your LLC or corporation restructure the EIDL loan in Subchapter 5 bankruptcy or simply shut down the LLC or corporation.
Wink & Wink’s team works with many small business owners to strategize the most cost-effective means for dealing with EIDL loans and other debt. We’re happy to find out about your situation and provide steps you can take, which you can learn more about during a free consultation.
Options for Small Businesses with Personally Guaranteed Small Business Loans
Our bankruptcy lawyers for small businesses study the possibilities for all business owners affected by COVID-19 SBA EIDL loans, now due after deferment. The following considerations can be included as part of Wink & Wink’s legal strategy to help you identify the most cost-effective way to deal with this liability:
- You may be able to restructure your company’s EIDL loan into more affordable terms by filing for small business bankruptcy through Subchapter 5.
- If your loan is guaranteed, you could consider filing for personal bankruptcy (Chapter 7 or Chapter 13).
- If your business is a corporation or LLC, you may be able to restructure your business into a sole proprietorship by dissolving the corporation or LLC and continuing operations as a sole proprietor. If you are personally liable for the EIDL loan, you could then file for personal bankruptcy.
- If you do not intend to continue operations for your corporation or LLC, you can consider completely dissolving the business. If your EIDL loan is $200,000 or less and is not guaranteed by you personally, this may end the EIDL liability. If you personally guaranteed the EIDL loan, you could explore filing personal bankruptcy to discharge this liability.
- Some small businesses have explored an “Offer in Compromise,” negotiating specifically with the Small Business Administration. Wink & Wink’s Denver debt relief attorneys are happy to guide you with a personalized legal strategy if this route makes sense for your circumstances.
Remember: regardless of your standing as a corporation, LLC, sole proprietorship, or any other business configuration seeking debt settlement and relief, Wink & Wink’s responsibility is to secure the best possible outcome.
We understand that many business owners want to keep their business going and don’t want to dissolve their business, even when facing financial challenges related to SBA EIDL loans. We can help you find a solution through bankruptcy that can keep you in business and allow you to take advantage of the tools of the trade exemption to protect up to $60,000 worth of your business equipment, which is good news for business owners.
Partner with Wink & Wink for Relief from Your Small Business Loan Challenges
We’re here to secure a win for you, even in the face of your recent financial difficulties. This is our pledge to businesses and business owners in Denver, and the reason we are the leading firm for bankruptcy and other debt-related solutions in the city we call home.
Wink & Wink stays updated on the issues that matter to our Denver community, positioning ourselves as small business bankruptcy lawyers who have the answers and solutions when you need them. Whether you’re looking for a debt settlement solution related to COVID-19 loans or any other resolution to your financial challenges, our Denver debt relief attorneys will be there with a legal strategy you can depend on.