Can I Settle My EIDL Loan for Less Than I Owe in 2026?

It’s time to pay back your COVID-era EIDL loans. Yes, the pandemic is officially over, but things did not exactly return to normal. Plus, normal was not exactly good times for many of us anyway. If the thought of repaying the EIDL loan is overwhelming your business, here are the things that you need to know.

Can you settle an EIDL loan? Before we can talk about settling an EIDL loan, you need to know your position. How much the SBA can take from you if you default will determine how much negotiating power you have. This will hinge on a couple of factors: who signed, what was pledged, and bankruptcy.

To help small businesses cope with COVID, the Small Business Administration (SBA) offered Economic Injury Disaster Loans (EIDL) to a wide range of small — and not-so-small — businesses. Unlike PPP loans, which were mostly forgivable, EIDL loans were meant to be repaid, generally beginning a year after issuance. Loans above a certain threshold were secured by either the borrower’s assets or a personal guarantee by the borrower’s owner.

Who Is Responsible for the Loan

If you have an EIDL loan and it is due and you cannot pay, begin by identifying who exactly is the borrower. That will allow you to determine who is responsible for the loan. The name of the borrower should be in the first paragraph of the loan agreement. Is it a corporation or LLC or is it a real person? Does it make a difference who the borrower is? Yes. If the borrower is the company and nobody signed a guarantee, the SBA’s options are far narrower than if you signed personally. That difference will affect every conversation you will have about the debt.

If the borrower is a corporation or LLC, does one of its owners or managers personally guarantee the loan? A guarantor has the same liability as the borrower. The lender does not have to try to collect from the borrower first before seeking payment from the guarantor.

It doesn’t matter that the SBA collection notices are addressed to you personally, with your business name and address. That’s the same as an ‘attention of’ where the SBA is just saying it is addressing it to you. See what the loan agreement says for who owes the debt.

A secured loan means that the borrower has pledged some property as collateral to secure repayment of the loan. The lender gets a “lien” on the property, which means that it has rights in the property in addition to its rights against the borrower. The agreement must describe the collateral in general terms. The lien must be perfected against other creditors by filing a notice of it in the office that state law designates. An unsecured loan has no collateral backing it. If the SBA has a lien, it has something it can sell. If it doesn’t, it is in the same line as everyone else you owe.

Get out that paperwork and read it yourself. Look for the borrower’s name, typically the first paragraph. Look for any personal guarantee you or a business partner signed. See if the agreement calls out any collateral (i.e., property) and if any lien was filed. Those pages hold way more useful information on your situation than any collection letter.

Risk Profile

If the borrower is a business entity, then its risk profile is different from that of an individual borrower. A business can cease to exist, regardless of whether it files bankruptcy, and the SBA will have little recourse if it does so. The SBA can take the collateral, if any, and sell it, and use the proceeds to reduce the balance on the loan.

If the SBA is unsecured, they are like any other general, unsecured creditor of the business, with a right to file a lawsuit against the business and hope that there is something left to seize. Unless there was a personal guarantee or some defect in the business organization, the shareholders, members or managers are not personally liable for debts of the business.

Things are more involved for an individual - whether as borrower or guarantor. The complication comes from the fact that the borrower expects to continue earning income from other sources even after the business shuts down. The SBA can garnish wages without resorting to litigation, withhold tax refunds until the loan is paid, and offset a portion of an individual’s Social Security payments. The SBA can’t impose a lien on your home (or any other asset) unless they sue you, or unless you used that asset as collateral for the loan.

Here is where your personal liability really stinks. With a company that has gone out of business, there may be nothing for the SBA to take. But, with an individual who still has a job, the SBA can garnish part of that paycheck or even a tax refund or part of a Social Security payment without going to court first. Now that is a much different set of cards to be dealt with.

Dischargeable in Bankruptcy

The only type of bankruptcy where a business entity can get its debts discharged is chapter 11, which is reorganization. You only want to reorganize if the business is viable going forward, expects to have money to pay creditors, and has the management capacity to get a deal done with creditors.

Good news for our purposes: an individual’s personal liability on an EIDL loan is dischargeable in bankruptcy, unless the borrower fraudulently misrepresented things in order to obtain the loan, or used the proceeds for non-business purposes. Note that SBA can go back in and challenge the dischargeability if it is willing to bring fraud allegations and prove them in bankruptcy court. So far the government is prioritizing borrowers who did not use the money for eligible expenses.

Whether the EIDL loan is a lifeline or an anchor depends on the condition of the business. If it is viable, it may be worth it to figure out a way to keep making payments. If not, it depends on who is liable on the loan, whether the loan is secured, and what assets the SBA can actually seize. Figure this out before you discuss settling anything.