U.S. Government figures show millions of small businesses have received some $630 billion in loans through the Paycheck Protection and Economic Injury Disaster Loan (EIDL) Programs … but what happens if those businesses fail anyway?
Nearly 25 percent of the small businesses in the country are considering closing their doors permanently due to the COVID-19 pandemic, according to a report from CNBC, and as many as 12 percent are facing bankruptcy. And many business owners who have received PPP loans are wondering if they will be on the hook for the money if they are forced to close their business.
The answer is ‘it depends’. PPP and EIDL loans smaller than $25,000 did not require collateral and have generally more favorable terms, and are more likely to be discharged, according to the report. But the federal government could seize assets and federal tax refunds to satisfy the debt. The business could also be reported to credit scoring agencies.
Businesses that hold larger loans, particularly those made under the EIDL program, could face seizure of physical assets, such as machinery or trucks, and warehouse inventory. They could also lose whatever assets were put up as collateral for the loans.
Bankruptcy is also an option. But business owners who choose that route could have their PPP or EIDL loan applications scrutinized, which could mean that the loan might not be forgiven.
The question may be entirely moot, as the federal government may forgive the loan entirely if the business owner can show that the loan was used properly.