3 Actions in the Right Order
Closing a Business With an Open EIDL Loan

The business can end on a Friday. The EIDL obligation will still be open on Monday.

When the last register stops ringing, the note continues to measure delinquency, the collateral clause continues to cover the equipment sitting in the empty room, and the servicing office continues to post interest that no one remains to watch. Owners often treat the final day of trade as the final day of every obligation attached to it. The COVID EIDL is the obligation that does not honor that assumption.

What remains after the decision to close is an extremely narrow set of decisions, taken in an order the owner did not choose, under documents signed years earlier when revenue had stopped and payroll had not. Rarely does a file arrive in the order the owner remembers it.

What the SBA Expects Before Closure

The SBA guidance on COVID EIDL servicing and closure states that owners anticipating closure or liquidation should send a message through the loan portal or contact the servicing center, and that single instruction reorders the entire closure, because review comes before distribution rather than after the assets have already moved.

A general inquiry, if we are being precise, is not approval. The written response belongs in the loan file next to the note rather than in memory, and owners postpone this correspondence longer than they admit, usually because the final payroll crowds out every task that lacks a deadline.

With each transaction, a matching servicing request belongs in the portal before assets move. Assumption, change in ownership, release of collateral, release of guarantor, substitution of collateral, subordination, and a general assistance request for matters the named categories do not cover each carry separate letters and separate proof, and the owner who describes a closure as a sale, or a sale as a pause, will receive instructions for the wrong event. The published guidance is detailed on procedure and silent on timing, which is part of the problem.

In the last month of operation, paper accumulates faster than it can be filed. Lease notices, final payroll figures, vendor demands and the expected servicing response compete for the same crowded afternoon. There is a peculiar optimism in scheduling the final sale before reading the servicing letter.

First Action: Establish the Borrower and the Collateral

Signatures determine personal exposure, not the titles on the company letterhead. Retrieve the note, the security agreement and every amendment signed when the loan amount changed, and read them for the borrower name, the collateral described and any personal guarantee.

Whether this loan carries a personal guarantee and a blanket claim on business assets is answered by those papers, not by recollection of the rules in the year of origination. Counsel should review and analyze the guarantee (which can survive the closure of the borrower intact, since the promise was made by the individual rather than the entity) before any asset leaves the building.

The entity can be dissolved. The debt can remain.

Second Action: Request Servicing Review Before Distributing Assets

Money paid out in the wrong order cannot be recalled with an apology. Before equipment is sold, inventory is transferred or proceeds are applied to favored vendors, the owner should submit the servicing request that matches the transaction and wait for the written response. Steps the owner takes, or does not take, in this interval will shape every later discussion of the claims asserted against the borrower.

The SBA page lists separate letters for release of collateral, substitution of collateral, subordination and purchase money interests, and each one asks for proof that general correspondence does not contain. Vendors remember who paid them last. The servicing office records who was paid first. That ordering controls what happens next.

Whether a transfer to a successor entity owned by the same family changes the analysis is a question the published letters do not answer.

The payment assistance program cuts the installment by fifty percent for six months, which matters here mainly as a boundary, since eligibility requires a business actively open and operating and an account less than ninety days past due. A closing business should not plan around relief it cannot receive.

Distribution is a legal act before it is a courteous one.

Third Action: Preserve the Record and the Payment Position

After the requests go out, the remaining work is paper. Assemble the payment history, every notice received, the servicing correspondence and proof of portal submission carrying a visible date, and keep the copies in the order received. Ensure the folder contains the note, the amendments and the latest servicing response before the doors close.

Where the ledger and the portal disagree, record and retain both figures and ask for reconciliation instead of choosing the kinder one. Small differences between the two figures prove extremely stubborn in later disputes. Whether the same mailbox handles these requests next year is beyond what the page promises.

File the servicing responses with the note and the amendments, since the approval or denial stated there will matter more than any recollection of a phone call, no matter how reassuring the voice sounded.

Before the Final Distribution

Delancey Street offers a free confidential initial review for owners facing business debt decisions, and a borrower closing with an EIDL balance can ask whether the account is eligible for review (eligibility for any particular account must be confirmed rather than assumed). The company provides debt settlement services as a settlement company and coordinates legal matters with independent counsel, since it is not a law firm. Owners should consult and contact independent counsel before signing releases, and counsel should ensure that any agreement addresses the borrower named in the note, the collateral described in the security agreement and the servicing position shown in the most recent written response from the center.

A closure documented in order leaves the owner free to begin again, even briefly revisiting figures thought settled, and the owner should simply close the file the way the business was opened: deliberately. When the portal reads current and the ledger disagrees, the portal reading will anchor every later discussion. That freedom is the entire purpose of doing this last work first.