If you took out an SBA Emergency Injury Disaster Loan (EIDL) during the COVID pandemic, you’re not alone. These government-backed loans offered generous terms — like 30-year repayment periods at a 3.75% interest rate — but many small businesses now face challenges repaying them.

Unlike the PPP (Paycheck Protection Program), which was essentially a forgivable grant if used properly, EIDL loans must be repaid. However, if you’re struggling with EIDL loan payments, there are options you might not know about.

One common question is whether SBA EIDL loans can be discharged or reduced in bankruptcy. The answer is yes. SBA EIDL loans are treated like regular loans from banks or other lenders in bankruptcy proceedings, meaning they can be discharged or crammed down in Chapter 7 or Chapter 11 cases. This is different from tax debts, which are generally non-dischargeable and have stricter repayment requirements.

It’s important to note that if you personally guaranteed the EIDL loan, that personal guarantee is a separate obligation. Discharging personal guarantees requires filing personal bankruptcy or another appropriate legal proceeding.

If bankruptcy isn’t the right option, other paths include negotiating with the SBA for loan modifications or compromises. Chapter 11 bankruptcy is a powerful tool for restructuring business debts, including SBA loans, though interest rates and payment terms on these loans are typically fixed.

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If you’re facing difficulty with your SBA EIDL loan or other business debts, consulting with an experienced attorney as soon as possible is key. Understanding your options can help protect your business and your financial future.