Quick Answer
For COVID EIDLs, the SBA generally did not require a personal guaranty at or below $200,000, and generally did require one above that figure. If you borrowed through a corporation or LLC and did not sign a guaranty, the debt is the entity’s and your personal assets are not exposed. If you borrowed as a sole proprietor, you are personally liable at any amount.
Why This Question Comes First
Every other decision about an EIDL depends on this one. Whether you need a personal bankruptcy, whether the business needs to file at all, whether Treasury can garnish your wages, whether your house is at risk. All of it turns on whether you are personally liable.
It is also the question borrowers most often answer wrong, in both directions. Some assume they are on the hook when they are not, and spend money and worry on a debt they do not owe. Others assume the corporate shell protects them, and are startled when a garnishment notice arrives.
The Three Categories
Entity borrower, no guaranty. Your corporation or LLC signed the note. You did not sign a personal guaranty. The debt belongs to the entity alone. If the entity has closed and holds no assets, there is often nothing for the SBA to collect and no personal exposure at all. This is the position most COVID EIDL borrowers at or below $200,000 are in.
Entity borrower with a guaranty. Your corporation or LLC signed the note and you signed a separate guaranty. You and the entity are both fully liable for the entire balance. These are two distinct obligations, and this is where the most damaging misunderstanding occurs, which the next section addresses.
Sole proprietor or general partner. There is no entity. You and the business are the same legal person, so you are personally liable regardless of the loan amount. The $200,000 threshold is about whether an entity’s owner also signed on. It does nothing for a sole proprietor, who never had separation to begin with. A great many EIDL borrowers were sole proprietors and independent contractors who did not form an entity, and they are personally liable on the first dollar.
The Mistake That Costs People the Most
If you personally guaranteed the loan and the company files Chapter 7, your guaranty survives.
Section 524(e) of the Bankruptcy Code says a discharge of one debtor does not affect the liability of any other entity on the same debt. A guaranty is your own independent promise. When the corporate borrower’s obligation is resolved through bankruptcy, dissolution, or anything else, your promise is still standing and the SBA can enforce it against you.
This runs in both directions. Your personal Chapter 7 discharges your guaranty but leaves the entity’s obligation intact. The entity’s Chapter 7 does nothing for your guaranty.
Where a guaranty exists, resolving the situation usually means addressing both obligations, which sometimes means two filings and sometimes means an individual filing while simply dissolving the company. Which combination is right depends on what assets exist and where. It is not a decision to make by guessing.
How to Confirm Where You Stand
Do not rely on memory. EIDL closings happened fast, often entirely online, frequently in 2020 when nobody was reading carefully.
Look for these documents:
- The Loan Authorization and Agreement. This identifies the borrower. Check whether the borrower is the entity’s full legal name or your individual name.
- The Note. Check the signature block. Did you sign as an officer or member on behalf of the entity, or in your individual capacity?
- An Unconditional Guarantee, often SBA Form 2128 or similar. If this document exists with your signature, you are a guarantor. If it does not exist, you very likely are not.
- Any security agreement or UCC-1 filing. These establish liens on business collateral. They are separate from personal liability, and it is possible for the SBA to hold a lien on business assets while having no claim against you personally.
If you cannot locate the file, the SBA disaster loan servicing center can provide copies. Get them before you make decisions, and get them before you respond to a collection notice that assumes you are liable.
When the SBA Says You Are Liable and You Are Not
This happens with some regularity. A borrower with a $150,000 EIDL and no guaranty receives a demand letter addressed to them personally, or worse, a notice of proposed wage garnishment.
Sometimes the SBA’s records reflect an owner as a guarantor because of how the application was completed, even though no guaranty was executed. Sometimes a collection contractor working from a data file simply pursues the owner listed on the account.
If this describes you, the response is documentary rather than rhetorical. Produce the note and the absence of a guaranty. Where a wage garnishment notice has issued, request the administrative hearing within the 15-business-day window and put the documents in front of the hearing official. Do not ignore it on the theory that you are obviously not liable, because the garnishment order can issue while you are being obviously right.
Two Situations That Complicate the Analysis
You paid the loan with personal funds. Many owners kept an EIDL current out of their own pocket after the business stopped generating revenue. This does not create personal liability on the note. It may, however, create other issues, including claims that the payments were transfers by you for the benefit of the entity. Worth reviewing, not worth panicking about.
The entity is a single-member LLC. The LLC is still a separate legal person and the analysis is the same. In practice, single-member LLCs are more vulnerable to arguments that the entity form should be disregarded where the owner did not observe any separation between personal and business finances. Where the LLC’s account functioned as a personal account, expect the argument.
Frequently Asked Questions
My EIDL was exactly $200,000. Am I a guarantor?
The threshold operated at amounts exceeding $200,000, so a loan at that figure generally did not require a guaranty. Confirm against your documents rather than the threshold, because what governs is what you signed.
I have a PPP loan too. Am I personally liable for that?
Generally no. PPP loans did not require personal guaranties.
Does the SBA’s lien on business assets mean I am personally liable?
No. These are separate. A lien gives the SBA rights against specific collateral. Personal liability gives the SBA rights against you. You can have one without the other.
If I am not personally liable, do I need to do anything at all?
Often very little, beyond properly dissolving the entity and responding to any collection contact with documentation. You may not need to file bankruptcy personally. That is a genuinely good outcome and worth confirming rather than assuming.
Can the SBA pierce my LLC to reach me?
It would have to establish grounds under state law for disregarding the entity, which typically requires showing the entity was undercapitalized, that formalities were ignored, or that funds were commingled. It is not routine, but it is not unheard of where an owner treated the business account as personal.
This article is general information and is not legal advice. Whether you are personally liable for a particular SBA loan depends on the documents you signed.