EIDL Solutions: Payment Assistance and Bankruptcy Considerations

Since March 2020, Frost Law has advised numerous businesses nationwide across various industries on their Economic Injury Disaster Loans (EIDLs) from the Small Business Administration (SBA).

Economic Injury Disaster Loans (EIDL) are designed to assist small businesses in recovering from a declared disaster. These loans help cover the costs and expenses that your business would have been able to manage if the disaster had never occurred. Many businesses utilized EIDLs during 2020 and 2021 to fund ordinary and necessary business expenses during the pandemic. However, for some businesses, paying back these loans created its own hardship.

COVID EIDL Payment Assistance

While the Hardship Accommodation Plan for COVID EIDLs closed on March 19, 2025, borrowers may still qualify for a one-time reduced payment of 50% of the original payment amount for six months. Our tax attorneys have been successful in negotiating these payment plans with the SBA to allow business owners the ability to pay a lower amount. 

• Payment Assistance Eligibility: To qualify, the loan must be less than 120 days past due at the time of the request, the loan cannot be in Charged Off status, and borrowers must submit with the request a reasonable explanation for their temporary financial difficulty or cash flow problem, as well as the reason(s) why the borrower believes that it is temporary or short-term.
• ‍Previously Enrolled: Those previously enrolled in payment assistance may be eligible to enroll again if you are experiencing a temporary financial hardship.
• ‍Currently Enrolled: Those currently participating in payment assistance will maintain lowered payments until the duration of the period, but are then required to resume full payments.
• ‍Continued Interest: If approved for the one-time reduced payment, interest will continue to accrue on the outstanding loan balance, creating a balloon payment due at the end of the term.
• ‍Delinquencies: If you fail to make payments, either reduced or regular, you will be referred to the Treasury Bureau of Fiscal Service Offset Program (TOP) after 120 days of delinquency. Loans that meet delinquency eligibility requirements will also be transferred to the Treasury Bureau of Fiscal Service Cross-Servicing Program (CSP), where the Treasury Bureau, not the SBA, will solely service the loan.

Bankruptcy Considerations

While it’s best to consult with our experienced bankruptcy professionals, who can guide you through every step of the process, here are some considerations to help determine if Bankruptcy is right for you.

• ‍Collateral: Most SBA EIDL loans over $25,000 are secured with business assets. Bankruptcy could impact your ability to retain these assets, depending on the chapter filed and how the collateral is treated.
• ‍Personal Guarantees: For loans over $200,000, a personal guarantee is typically required. Real estate is the preferred collateral, and the SBA will require borrowers to pledge their primary residence unless the owner has other assets of sufficient value. Filing for bankruptcy may affect your personal liability, and the type of bankruptcy you file will determine whether that liability can be discharged.
• ‍Type of Bankruptcy: Options like Chapter 7 (liquidation), Chapter 11 (reorganization), or Chapter 13 (repayment plan for sole proprietors) each offer different approaches. The right fit depends on your business structure, assets, debt amount, and goals.
• ‍Bankruptcy Alternatives: In many cases, viable alternatives may be available before pursuing bankruptcy, including: (1) negotiating directly with the SBA or lender to extend the loan term, adjust the interest rate, or defer payments; (2) exploring alternative relief programs at the state or federal level; and/or (3) Implementing a business restructuring plan to improve cash flow and reduce expenses without legal proceedings.

We know the ins and outs of EIDLs are confusing. Frost Law is offering consultations to determine EIDL eligibility, help with loan modification, and SBA denial letters. Contact our team at (410) 497-5947 or fill out our brief contact form to schedule your initial confidential consultation.