SBA Default EIDL
SBA default on EIDL
I see many posts about SBA loans with no PG default and after closing the company the debt clears. (Lack for better words).
I have a colleague who runs a small art company and took an SBA loan out during the pandemic. No PG and it was for about $25k. She has been paying on time and has always been current and has about $20k I believe left to pay.
Due to some changes, she’s not making the same each month and can’t afford the SBA payments anymore. There was talk about shutting the company down and defaulting on the SBA but she doesn’t want to close her LLC and is trying to keep it alive.
I guess my question is, with no PG but wanting to keep her company going; what would happen if has to stop paying for a while or all together so she can catch up and stay afloat?
That’s a great and very realistic question — and it’s one that’s coming up a lot right now.
Let’s break down exactly what happens when someone defaults on an SBA EIDL loan with no personal guarantee (no PG) but wants to keep their business active.
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🔹 1. The key distinction: No PG = Limited Recourse
For EIDL loans under $200,000, the SBA generally did not require a personal guarantee.
That means your colleague is not personally liable for repayment — the debt is attached to the business entity only (the LLC).
If she defaults:
• The SBA cannot go after her personal credit, personal assets, or personal bank accounts.
• However, they can pursue the business entity itself — meaning any assets owned by the LLC could be at risk (business bank account, inventory, equipment, etc.).
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🔹 2. What the SBA usually does after default
If she stops paying, here’s the typical sequence:
1. Late notices and demand letters start coming from the SBA’s servicer (often SBA Disaster Loan Servicing Center).
These letters escalate from friendly reminders → demand for payment → notice of intent to refer to Treasury.
2. After about 120–180 days of nonpayment, the SBA declares the loan in default.
3. The debt is charged off and referred to the U.S. Department of Treasury (Bureau of the Fiscal Service) for collection.
• Treasury can apply collection fees (up to 30%),
• Offset federal payments (like tax refunds or federal contractor payments),
• And report the business EIN to credit bureaus (but not her personal SSN if there’s no PG).
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🔹 3. If she wants to keep the LLC alive
Here’s where it gets tricky — if she keeps the LLC open, the SBA and Treasury can continue to pursue the business for payment indefinitely.
If the company:
• Still has a business bank account, Treasury can attempt to levy or offset those funds.
• Has future income, it can be subject to collection efforts under the LLC’s EIN.
• Wants to apply for new SBA or federal loans, that’s almost impossible while the debt is unresolved or in default.
If she shuts down the LLC properly (dissolution, final tax return, no assets), there’s not much left for the government to collect from — which is why you see posts where the “debt just disappears.”
In that case, the debt is technically uncollectible, but still on record as a charge-off, not forgiven.
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🔹 4. If she pauses or misses payments (short-term)
If she just needs a temporary break, she can try:
• Requesting hardship deferment directly from the SBA Servicing Center.
• Many borrowers are being granted 6–12 month interest-only or deferred payments.
• She should call or email: [email protected] or 800-659-2955.
This is much better than just stopping payments. Once a loan hits Treasury, it’s nearly impossible to reverse.
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🔹 5. Long-term impact
| Scenario | Effect on Personal Credit | Effect on Business Credit | SBA/Federal Loan Eligibility |
| Keeps paying or defers | None | Positive | Eligible |
| Defaults, business stays open | None personally | Negative on business EIN | Ineligible for future SBA loans |
| Shuts down business and walks away | None personally | Business shows charge-off |
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🔹 6. Realistic options for her
1. Request deferment or modified payment plan.
SBA is still accommodating hardship requests for COVID-era EIDL loans.
2. Sell or transfer business assets before default (carefully and legally) to minimize exposure.
3. Avoid ignoring letters — once Treasury gets involved, 30%+ penalties apply.
4. If default happens, she can choose to dissolve the LLC and start fresh under a new entity, but she’ll lose access to future SBA financing under the old EIN.
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⚠️ Final takeaway
If there’s no personal guarantee, her personal finances are safe.
But if she wants to keep the LLC active, it’s best to contact SBA before default to work out a hardship plan.
Once it hits Treasury, there’s no going back, and the business EIN will carry that default record forever.
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In addition, I’ll draft a simple sample hardship-request email she could send to the SBA Servicing Center (including the right contact info and tone)? It helps buy time and protect her credit while she decides next steps.
Awesome—here’s a clean, copy-paste hardship deferment request your colleague can send. I included two lengths, plus a quick phone script and what to attach so it actually gets approved.
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Short email (fastest)
Subject: EIDL Hardship Deferment Request — [Legal Business Name], Loan #[XXXXXXXX-XX]
Hello SBA Servicing Team,
I’m requesting a temporary hardship deferment (or interest-only plan) on our COVID EIDL Loan #[XXXXXXXX-XX] for [3–6] months. Due to [brief reason: sales decline, key client loss, seasonal dip, cost spike], our current payment is not feasible, but we can resume normal payments after this short recovery window.
Business: [Legal Name] | EIN: [XX-XXXXXXX] | Contact: [Name, phone, email]
Proposed plan: [Interest-only] or [Defer to $0] for [3–6] months.
Attachments: last 3–6 months business bank statements and a 90-day cash-flow snapshot.
Thank you for your consideration.
Best,
[Name]
[Title]
[Phone]
[Email]
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Full email (best for approvals)
Subject: Request for EIDL Hardship Deferment (or Interest-Only) — [Business], Loan #[XXXXXXXX-XX]
Hello SBA Disaster Loan Servicing Team,
I’m writing to request a temporary hardship payment accommodation for our COVID EIDL Loan #[XXXXXXXX-XX].
Business: [Legal Business Name]
EIN: [XX-XXXXXXX]
Borrower Contact: [Your Name, Title, Phone, Email]
Reason for hardship (1–2 sentences):
Over the past [X] months we’ve experienced [e.g., a 28% revenue decline from reduced orders / a key customer non-renewal / seasonal slowdown coupled with higher input costs], which has tightened cash flow.
Request:
• Option A: Defer to $0 for [3–6] months, with interest accruing.
• Option B: Interest-only payments for [3–6] months.
(We’re open to your recommendation.)
Plan to resume full payments:
We expect [new contract launch / seasonal upswing / cost reductions / inventory turnover] to normalize cash flow by [Month, Year], at which time we’ll resume the regular payment (or earlier if feasible).
Included:
• Last 3–6 months business bank statements
• A simple 13-week cash-flow (receipts & disbursements)
• Recent P&L (if helpful)
We appreciate your consideration and remain committed to honoring this obligation.
Thank you,
[Name]
[Title]
[Phone]
[Email]
[Business address]
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Where to send / how to reach SBA
• Email: [email protected]
• Phone: 800-659-2955 (ask for the Disaster Loan Servicing Center)
• Have ready: Loan #, EIN, business name, and a short hardship summary.
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60-second phone script (if calling)
“Hi, I’m calling about our COVID EIDL Loan #[XXXX] for [Business Name, EIN …]. We’ve had a short-term cash-flow hardship due to [one line reason]. I’m requesting a temporary hardship accommodation—either $0 deferment or interest-only for [3–6] months. I can email our last 3–6 months bank statements and a 13-week cash-flow today. What’s the best email and any specific form you need?”
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What to attach (keeps it frictionless)
• 3–6 months of business bank statements (PDFs)
• A simple 13-week cash-flow (Excel/CSV is fine)
• (Optional) Recent P&L or brief memo showing the drop and the recovery plan
• Your contact info in the email signature
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Tips that improve odds
• Ask for a short window (3–6 months) and name two acceptable options (defer to $0 or interest-only).
• Keep the reason specific and verifiable (one or two sentences).
• Signal a clear resume date and what changes by then.
• Respond quickly to any follow-ups.
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Obviously, if she’d rather have a pro handle this end-to-end or consider alternatives (modification, workout, or orderly wind-down), she can call Darcy DeBlieux at US Tax Relief at 1-844-4-IRS-FIX or visit TaxReliefProgram.org for help.