If you’re a small business owner who applied for an SBA Economic Injury Disaster Loan (EIDL), you’re likely wondering whether you’re personally responsible for repaying the loan. The terms of EIDL loans can vary based on factors like loan amount and ownership percentage. Understanding whether the loan is personally guaranteed or not is crucial, as it can have significant implications for your personal finances.
In this blog, we will explore the details about SBA EIDL loans and whether they require personal guarantees. We’ll also cover the differences in requirements based on loan amounts, who’s liable, and what happens if you default on the loan. Let’s break it down into easy-to-understand sections so that you can make informed decisions.
Key Points:
- Personal guarantees are required for loans over $200,000.
- Loans under $200,000 generally do not require a personal guarantee.
- If you have at least 20% ownership in the business, you may be personally liable.
What Does Personal Guarantee Mean for SBA EIDL Loans?
A personal guarantee is a commitment from the borrower or business owner to be personally responsible for the loan repayment. In the case of SBA EIDL loans, this guarantee can mean that you, as the business owner, are on the hook for the loan if your business cannot repay it.
Personal Guarantee for Loans Over $200,000
For SBA EIDL loans above $200,000, the SBA requires a personal guarantee from individuals who own at least 20% of the business. This is a standard procedure to ensure that the loan is secured by more than just the business assets. In case of default, the SBA can pursue personal assets like your savings, home, or investments to repay the debt.
Personal Guarantee for Loans Under $200,000
On the other hand, SBA EIDL loans under $200,000 are typically unsecured and do not require a personal guarantee. These loans are instead secured by business assets. However, while you are not personally liable for the loan in this case, it’s important to remember that the SBA can still seize business assets to recover the debt if the loan is not paid back.
How SBA EIDL Loans Work
SBA EIDL loans are designed to help businesses affected by disasters like COVID-19. These loans provide low-interest funding to cover operating expenses that can’t be paid due to the disaster’s impact on the business. The EIDL program is part of the SBA’s disaster relief efforts and is designed to provide financial support to small businesses to help them survive during challenging times.
Key Loan Features
- Loan Amount: Up to $2 million.
- Interest Rate: 3.75% for small businesses, 2.75% for non-profits.
- Repayment Period: Up to 30 years.
- Payment Deferment: First payments are deferred for 24 months.
Loans that are under $200,000 do not require a personal guarantee, which means you won’t be personally liable for the debt if the business fails to repay. However, for loans exceeding this threshold, the SBA requires additional security in the form of a personal guarantee.
What Happens If You Default on an SBA EIDL Loan?
If you are unable to repay your SBA EIDL loan, the SBA will attempt to collect the debt in a few different ways. For loans over $200,000 with a personal guarantee, the SBA can pursue the business’s assets first, but if those aren’t sufficient, they may turn to personal assets for repayment.
Steps in Loan Default Process
- Collection of Business Assets: If the business defaults, the SBA will attempt to seize assets like property, equipment, or other business-related valuables.
- Pursuit of Personal Assets: If business assets are not enough to cover the loan, the SBA will then pursue personal assets such as savings accounts, investments, or even your home.
Table: EIDL Loan Amounts and Personal Guarantee Requirements
| Loan Amount | Personal Guarantee Needed | Secured By |
| Under $25,000 | No | None |
| $25,000–$200,000 | No | Business Assets |
| Over $200,000 | Yes (20%+ owners) | Business + Personal Assets |
Who Is Responsible for Personal Guarantees on SBA EIDL Loans?
Typically, business owners who have at least 20% ownership in the company are required to sign a personal guarantee for loans over $200,000. This means that, as the owner or major shareholder, you are personally responsible for repaying the loan if the business cannot.
In cases where there are multiple owners, all individuals with 20% or more ownership may be required to sign a personal guarantee. Even if you are not the one directly signing the guarantee, it’s important to understand that the personal liability can extend to all key business owners.
How to Avoid Personal Liability for SBA EIDL Loans?
If you wish to avoid personal liability for the loan, one option is to apply for a loan under $200,000, which does not require a personal guarantee. However, this is not always possible depending on your business’s needs and the amount of funding required.
Other Ways to Avoid Personal Liability:
- Collateral: Offering collateral in exchange for securing the loan can sometimes help avoid personal guarantees.
- Lower Loan Amounts: Applying for a loan below the $200,000 threshold is another way to avoid personal liability.
What Are the Consequences of Not Paying Back an SBA EIDL Loan?
Failing to repay your SBA EIDL loan can have severe consequences for both your business and personal finances. The SBA has the authority to garnish wages, place liens on your assets, and even seize your property if the loan goes unpaid for too long.
Impact on Personal Finances
If the SBA pursues personal assets after the business assets are insufficient, your personal savings, investments, or property may be at risk. This is why it’s important to carefully consider your ability to repay the loan before signing any personal guarantees.
Table: Consequences of Default on SBA EIDL Loan
| Default Consequence | Impact on Business | Impact on Personal Assets |
| Seizure of Business Assets | Loss of property, equipment | No direct impact |
| Pursuit of Personal Assets | Business closure | Loss of savings, home, investments |
| Damage to Credit Score | Negative credit rating | Negative credit rating |
Conclusion
In conclusion, whether or not your SBA EIDL loan is personally guaranteed depends on the loan amount and your ownership in the business. If your loan exceeds $200,000, a personal guarantee is required, which means you may be personally liable if your business defaults on the loan. For loans under $200,000, personal guarantees are not required, but the loan will still be secured by business assets.
Understanding these terms and implications is essential for protecting both your business and personal finances. Be sure to carefully read the loan agreement and understand your liabilities before signing.
FAQ’s
- Do I need a personal guarantee for SBA EIDL loans?
For loans over $200,000, a personal guarantee is required from individuals who own 20% or more of the business.
- Can I avoid personal liability for my SBA EIDL loan?
Yes, you can avoid personal liability by applying for a loan under $200,000 or offering collateral to secure the loan.
- What happens if my SBA EIDL loan defaults?
If you default, the SBA will first seize business assets. If those are insufficient, they may go after personal assets.
- Can I release myself from a personal guarantee?
It’s possible to be released from a personal guarantee if the loan is in good standing and you meet specific requirements.
- Are SBA EIDL loans only for businesses affected by COVID-19?
While originally designed for COVID-19 relief, the EIDL program can be used for other disasters as well, including natural disasters.