As an expert in business loans and business brokers, I’m here today to answer the question: what happens to a business loan if the business closes? This is an important topic for business owners to understand, and I’ll be sure to provide a comprehensive answer that covers the various scenarios.

What happens to a business loan if the business closes?

If your business is closing and has taken out an Economic Injury Disaster Loan (EIDL) of greater than $200,000, the business owner’s personal assets and finances are at risk. It’s important to understand if the loan is in default or just delinquent, as this will affect how the loan is handled. Generally, if the loan is in default, the lender will not be able to seize the business’ or personal assets. This is because EIDL loans do not require personal guarantees. However, the Small Business Administration (SBA) does have the right to claim the business. If a borrower is unable to pay off the loan, the lender will typically sell the loan to another company.

In some cases, the loan may fall under the ‘Offer In Compromise’ (OIC) process. This process typically applies to SBA loans that are in default. The OIC process allows the borrower to negotiate a settlement with the lender, which may include reducing the loan amount or extending the loan repayment period. It’s important to note that EIDL loans are not forgivable, and must be repaid over a 30-year term.

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What are the consequences if my business does not succeed and I have an SBA loan?

If your business and personal assets are insufficient to pay off your debt, your SBA lender will submit a request to the U.S. Small Business Administration to be compensated for the part of the loan which was secured by the federal government.

Are you responsible for repayment of an SBA loan?

If your business received a loan from the Small Business Administration, you probably signed a personal guarantee. This means that even though the loan was given to the business, you are personally responsible if the business fails to pay it back.

Is it possible to have an SBA loan forgiven?

A borrower can submit an application for forgiveness after all the money they requested to be forgiven has been spent. They are allowed to submit the request before the loan matures.

Who is obligated to repay an SBA loan?

The bank is the one that makes the loan, and the Small Business Administration (SBA) will cover up to 85% of the loss in the event of a default. The application for the loan is submitted to the bank, and payments are made to the bank. The bank is also responsible for finalizing the loan and providing the loaned amount.