What happens to your PPP loan if your business closes?


Although COVID-19 has affected the overall United States economy, small businesses have been exceptionally vulnerable to its wrath. More than 100,000 small businesses have already closed their doors, and nearly a quarter say they are considering going out of business permanently, according to a recent Small Business for America’s Future survey.

If you are thinking of closing the store due to the pandemic and the ongoing recession, you clearly have plenty of financial loose ends to tie up. But what if you received a PPP loan earlier in the year? Will you still be responsible for returning it?

Woman in apron holding sign saying sorry we are closed

Image source: Getty Images.

How much responsibility do you have?

Many small businesses have been helped to survive the COVID-19 crisis, and that includes PPP loans. The good news is that if your PPP loan was relatively small, you may have no problem if you decide to close your doors. PPP loans of up to $ 25,000 did not require collateral or personal guarantees from companies or business owners, so if you do not meet a PPP loan that falls within that threshold, you generally will not risk confiscating your personal or business assets.

Still, defaulting on a loan is hardly a fact. If you take that route, it can serve as a black mark on your credit history, making it difficult for you to borrow again, or to do it affordably if the need arises.

Imagine you decide to close your current business, wait for the COVID-19 crisis, and then try a new company again in a year or two. With a default on your credit history, you may be denied funds to get that new business off the ground. And, depending on how severe the damage to your credit is, you may even have a hard time getting approval to sign a commercial lease for your business to operate.

In the meantime, if your PPP loan was over $ 25,000, you may have a problem on your hands if you don’t. At that time, there is a risk of seizing your personal or business assets.

Bankruptcy may be a better option

If you want to close your business and can’t pay off your PPP loan, you may want to consider filing for bankruptcy. Generally, loans of this nature can be canceled during the bankruptcy process. But again, bankruptcy can serve as a black mark on your credit record, and it can also be a lengthy, lengthy, and costly endeavor.

What if your PPP loan is eligible for forgiveness?

Unlike most loans, PPP loans do not necessarily have to be repaid. PPP loans are forgivable for companies that meet specific requirements, that is, they use at least 60% of the income from their loans to cover payroll costs. If you meet these rules, but end up having to close your business after the fact, your pending PPP loan may not be a problem, as you may not have to pay it back anyway.

If you have a PPP loan and are at risk of closing, it is worth consulting an attorney or accountant who can guide you through your options and explain the consequences you may face. This is especially crucial if you have other outstanding obligations that you cannot pay.