Are You Considering Closing Your Business Permanently? Here’s What Happens to Your PPP Loan
The latest estimates say that over 100,000 small businesses have permanently shut their doors due to the coronavirus, with another 7.5 million clinging to life. American entrepreneurs wait with bated breath to see if any more government relief will be approved, even as many of them are unsure how to get—or spend—the money that they’ve already received. If you’re considering closing permanently due to COVID-19, here’s what you need to know about your PPP loan.
- If you received a smaller loan (less than $25,000) your repayment terms are likely pretty favorable. If repayment isn’t an option, these loans can often be discharged as a result of bankruptcy. However, that solution is less than ideal, as unpaid debts may linger on your credit report or affect your ability to get assistance from the SBA in the future.
- While loans of less than $25,000 are unsecured (not backed by collateral), the federal government could levy your tax returns as repayment. A default on a larger loan might result in the seizure of business assets like equipment or receivables.
- Default may put you at greater risk of investigation. While a smaller loan is typically eligible for discharge in the case of bankruptcy, the SBA may decide to look more closely at your application if you fail to repay. That means any inconsistencies in the application process could affect your ability to discharge your loan after all.
As with most circumstances surrounding the coronavirus, the exact details are uncertain. CNBC published a detailed report, but many factors are still unknown. Terms for funding packages, including funds that have already been dispersed, are still being finalized. It’s a smart move to contact your accountant for guidance before making any decisions about your company’s future. If you just need some additional financial support or access to funds to get you through the next uncertain stretch, reach out to us.