As an experienced business broker, I am often asked what happens to an EIDL loan when a business is sold. This is a complex question, as the answer depends on a number of factors. In this article, I will explain what you need to know about selling a business with an EIDL loan and the requirements you will need to meet before the business can be transferred.

What happens to EIDL loan if business is sold?

Yes, you can sell your business if you or your business received an EIDL loan, but you need to ask permission from the Small Business Administration (SBA). The SBA may be reluctant to allow a business to be transferred without having the EIDL Loan paid off in full at closing. In order to transfer the business, all liens must be released and the EIDL will usually be paid at the closing based on the payoff letter from the SBA from the proceeds the seller is receiving from the sale.

If the seller is unable to pay off the EIDL loan in full at closing, they may be eligible for an Offer in Compromise. This allows the seller to negotiate a settlement with the SBA to pay off the loan for less than the full amount owed. However, settling the loan through an Offer in Compromise will render the seller ineligible for another SBA loan in the future.

Key Takeaways

  • You can sell your business if you received an EIDL Loan, but you must ask permission from the SBA.
  • Any lien must be released and the EIDL loan must be paid off in full at the closing.
  • If the seller cannot pay off the loan in full, they may be eligible for an Offer in Compromise.
  • Settling the loan through an Offer in Compromise will render the seller ineligible for another SBA loan in the future.

When it comes to selling a business with an EIDL loan, there are a number of complexities and requirements you need to be aware of. If you have questions about selling a business, or need help understanding the requirements, the team at Atlantabusinesses.com can provide expert advice and assistance.

Do I need to return my EIDL loan if I sell my business?

This means that any claims from lenders, such as liens, must be paid off prior to or at the time of closing. Likewise, any EIDL (Economic Injury Disaster Loan) loans that the seller has taken out will need to be paid off before the closing date. Furthermore, the PPP (Paycheck Protection Program) loans must have been forgiven by Jun 2, 2022.

If a business shuts down, what happens to the EIDL loan?

If your EIDL loan is less than $25,000 and you have ceased operations, there is likely nothing the SBA can do to recoup the debt.

Will I be held accountable for the money I borrow through an EIDL loan?

If you take out a loan for more than $200,000, you are personally responsible for repaying it. Even if the business shuts down, you would still be expected to pay back the loan.

Is it possible to use an EIDL loan to sell my business?

You can sell your business if it received an SBA EDIL loan, however, you will need to receive authorization from the SBA first in order to do so.