One number decides more about a defaulted COVID EIDL than any other: $200,000. Loans at or below it carried no personal guarantee. Loans above it did. If your business closed owing a COVID EIDL, which side of that line you are on shapes who legally owes the debt. It does not shape nearly as much as some borrowers hope, so this guide covers both halves with equal care: what the line changes, and what it never changed.
Where the line came from
Ordinary SBA disaster-loan rules require personal guarantees, which is precisely why Congress had to intervene. Section 1110(c) of the CARES Act directed the SBA Administrator to waive “any rules related [to] the personal guarantee on advances and loans of not more than $200,000” for COVID EIDLs. SBA’s program page states the resulting rule in one line: personal guaranty “required for loans greater than $200,000.” Per the House Small Business Committee’s staff report, guarantees on the larger loans came from all individuals and entities owning 20 percent or more of the business, the same 20% convention used in the 7(a) personal guarantee.
Two related thresholds sit alongside it, both on SBA’s live page and in the committee record: collateral was required for loans greater than $25,000, taken as a blanket UCC security interest in the business’s assets, and this is the COVID-specific program; regular, non-COVID EIDLs follow the ordinary disaster rules, so do not map this line onto a 2018 or 2024 disaster loan.
What no personal guarantee actually changes
If the borrower was a registered entity, an LLC or corporation, and the loan was $200,000 or less, then no individual signed a promise to repay. SBA’s contract claim runs against the entity: its remaining assets (on which SBA holds that UCC lien for loans over $25,000), payments owed to it, and its federal tax refunds and other federal payments through offset. For a business that has genuinely wound down with nothing left, that is a materially different position than a 7(a) guarantor faces, where default reaches personal assets through the guarantee.
That is the entire good news, and it is real. Everything below is what the line does not do.
What it does not change
Sole proprietors were never behind the line. SBA’s own guidance on business structures is blunt: a sole proprietorship “does not produce a separate business entity,” and “you can be held personally liable for the debts and obligations of the business.” A sole proprietor or independent contractor who took a COVID EIDL is the borrower, personally, at any loan size. No guarantee was needed because none was necessary. Given how much of the program went to the smallest firms, this is the single most misunderstood fact in COVID EIDL default.
Offsets still run against the debtor. Delinquent loans are referred to the Treasury Offset Program after 120 days, per SBA’s servicing page, and the Congressional Research Service reports that 2026 collection activity includes offsetting federal payments such as income tax refunds and Social Security benefits owed to defaulted borrowers, plus administrative wage garnishment and potential litigation. For entity borrowers, offsets chase payments owed to the entity. For sole proprietors, the debtor is you. And on loans above $200,000, guarantors are obligors whose own refunds and payments are exposed. The full machinery is in how Treasury collects SBA debt.
Charge-off is not forgiveness. SBA’s offer in compromise requirement letter states that COVID EIDLs “are not able to be forgiven,” and a charge-off is an accounting action that ends active SBA collection while the debt survives and moves toward Treasury. A compromised or cancelled balance can also generate IRS Form 1099-C cancellation-of-debt income, a tax consequence covered in our Offer in Compromise guide.
The business’s wind-down still has rules. Closing an entity does not mean abandoning it. State law governs how a dissolving company must treat creditors before owners take anything out, and SBA’s lien on business assets does not evaporate at closure. SBA’s servicing page directs borrowers facing closure or liquidation to contact the COVID EIDL Servicing Center for guidance, and that conversation is better had with an attorney involved.
Fraud liability is always personal. The guarantee waiver is about contract debt. It says nothing about false statements. Misrepresenting revenue, employees, or eligibility in the application, or misusing proceeds, creates civil and criminal exposure for the person who made the certification, whatever the loan size and whatever the entity type. Congress made the point emphatically in the COVID-19 EIDL Fraud Statute of Limitations Act of 2022, Public Law 117-165, signed August 5, 2022: any criminal charge or civil enforcement action alleging borrower fraud on these loans can be filed up to 10 years after the offense. An honest borrower who cannot pay is in a debt process. A borrower who certified false facts is in a different process entirely, and no threshold protects them.
Reading your own situation honestly
The decision tree is short. Was the borrower an entity or you personally? Was the loan over $200,000, and if so, who signed guarantees? Is the business still operating, in which case current payment assistance may apply, or closed, in which case the wind-down and the default sequence apply? None of those answers should be guessed at from a web page, including this one, because loan files differ and the documents control.
This is not legal advice
Nothing here is a suggestion to stop paying a debt you can pay; the consequences above are the reason. If your business has closed or is closing with a COVID EIDL outstanding, spend the money for an hour with a business or bankruptcy attorney before you act, and use the free counsel of your local SBDC or SCORE alongside it. This page explains the rules as SBA and Congress wrote them; it cannot apply them to your facts.