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Failed SBA PPP & EIDL Loans: What to do?

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Failed SBA PPP & EIDL Loans: What to do?


While the U.S. transitions from summer to fall in the wake of the Presidential Election on November 3, 2020 against the backdrop of surging COVID-19 cases, it is very possible that a good chunk of small businesses will eventually close their doors despite having received federal stimulus help through SBA PPP loans or SBA EIDL loans.

When confronted with the prospect of having to shut down their small business, what can small business owners expect if the federal government comes knocking for repayment of any PPP loan funds that have not been forgiven in accordance with the SBA CARES Act?

Small Business Statistics

According to public statistics, 172,786 jobs were saved as a direct result of the SBA PPP loan program.  However, some small businesses still had to close their doors permanently.

According to public sources, approximately 140,000 small businesses remain closed due to the COVID-19 pandemic and 41% have shuttered permanently.

Public resources state that among those with the highest rate of permanent closures are shopping and retail (9,682 businesses), restaurants (12,709 businesses), beauty (3,683 businesses) and fitness (1,453 businesses).

As a result of the alarming number of permanent closures, many folks are wondering what happens when a small business PPP recipient closes permanently.

SBA PPP Loan Forgiveness

Despite the need for more guidance from the federal government, we know that if SBA PPP Loan recipients spent all of the money within eight weeks (or twenty-four weeks for those who received an extension after the PPP Flexibility Act was adopted) and they used at least 60% on payroll, then arguably their SBA PPP loan should be completely forgiven.

Unused SBA PPP Loan Funds

However, if small business recipients have unused SBA PPP Loan fund which they cannot pay off, they may need to consider the following options: (1) Submit a formal offer in compromise of the outstanding SBA PPP Loan or (2) File for federal bankruptcy protection.

According to Sharon King, the Boulder Small Business Development Center executive director, "Most or all of the loan is likely to be discharged as part of the process as long as the borrower has acted in good faith." However, it is still unclear on what would happen in this situation.

Misuse of SBA PPP Loan Funds

If the small business misused its SBA PPP Loan funds and then closed permanently, the SBA and Treasury have indicated their intent to follow the money by launching investigation measures and pursuing small businesses and the respective owners through various administrative and litigation tactics.

The SBA intends to provide additional guidance on PPP loan forgiveness. Once more guidance is issued, the industry should have a better idea of how the SBA PPP loans to permanently closed businesses will be managed.

If your Small Business is heading for closure despite receiving SBA PPP and/or SBA EIDL loans, you should seek advice of counsel to assist you with a potential resolution of your SBA loan problems.

Protect Law Group has proven, nationwide experience resolving SBA loan or debt cases.

Owe more than $30,000? Contact Protect Law Group for a Case Evaluation or call us toll-free at 1-888-756-9969.

We can analyze your SBA debt or Treasury problems and advise you on potential solutions.

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Why Hire Us to Help You with Your Treasury or SBA Debt Problems?

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Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure

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Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements

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Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.



Clients personally guaranteed an SBA 7(a) loan.  The SBA referred the debt to the Department of Treasury, which was seeking payment of $487,981 from our clients.  We initially filed a Cross-Servicing Dispute, which was denied.  As a result, we filed an Appeals Petition with the SBA Office of Hearings and Appeals asserting legal defenses and supporting evidence uncovered during the discovery and investigation phase of our services.  Ultimately, the SBA settled the debt for $25,000 - saving our clients approximately $462,981.



Client personally guaranteed SBA 7(a) loan for $150,000. COVID-19 caused the business to fail, and the loan went into default with a balance of $133,000. Client initially hired a non-attorney consultant to negotiate an OIC. The SBA summarily rejected the ineligible OIC and the debt was referred to Treasury’sBureau of Fiscal Service for enforced collection in the debt amount of $195,000. We were hired to intervene and initiated discovery for SBA and Fiscal Service records. We were able to recall the case from Fiscal Service back to the SBA. We then negotiated a structured workout with favorable terms that saves the client approximately $198,000 over the agreed-upon workout term by waiving contractual and statutory administrative fees, collection costs, penalties, and interest.



Clients borrowed and personally guaranteed an SBA 7(a) loan.  Clients defaulted on the SBA loan and were sued in federal district court for breach of contract.  The SBA lender demanded the Client pledge several personal real estate properties as collateral to reinstate and secure the defaulted SBA loan.  We were subsequently hired to intervene and aggressively defend the lawsuit.  After several months of litigation, our attorneys negotiated a reinstatement of the SBA loan and a structured workout that did not involve any liens against the Client's personal real estate holdings.

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