Below is a lightly edited transcript from my most recent YouTube video, which you can watch here.
Good morning, guys. My name is Jason, and I’m the founder of Distressed Loan Advisors. If you want to schedule time with me, there is a link in the notes below. I recently introduced an online chat feature, so if you’re unable to make a phone call, don’t have good reception, or something similar, you can now chat with me directly through this chat window.
Alright, today I want to talk about five myths or misunderstandings I commonly see regarding EIDL loans. Some of these come up in online forums and message boards, while others emerge during consultations with clients. I thought it would be helpful to address them since they tend to arise repeatedly.
A Lot Of People Don’t Understand What A Personal Guarantee Is
First, everyone has heard the concept of a personal guarantee, but I don’t think everyone fully understands its implications. What I mean by that is, I often tell people, “Hey, your loan was less than $200,000, and you took it through your S-Corp, so there is no personal guarantee.” They respond, “Yes, great, I understood that—there is no personal guarantee.” But then their next question is, “Can they come after my house? Will it show up on my credit? Can they garnish my wages?”
To me, that demonstrates that while they are familiar with the phrase “personal guarantee,” they don’t fully grasp its implications. To be clear, if there is no personal guarantee and the loan is through a legal entity, then there is no personal liability. This means they cannot pursue any personal assets that belong to you as an individual because you are not the borrower, and you are not personally responsible for it.
So, they can’t garnish your wages, they can’t go after your house, and they can’t take anything that belongs to you personally. Their recourse is limited to what they can recover from the borrower, which is the legal entity, such as the S-Corp. If that borrower has assets, certainly they can pursue those, but they cannot go after anything personal. I can’t stress this enough because I repeat it over and over, and people still don’t seem to fully understand. Hopefully, this makes it clearer.
The SBA Is NOT The IRS
Number two, the SBA is not the IRS. I know it can be confusing because they mention the Treasury, and the IRS is part of the Treasury, so people think, “Well, the SBA has all the same tools as the IRS,” but in my experience, that’s not the case. The IRS can be very aggressive; for example, they can levy bank accounts. When it comes to SBA loans, typically the worst that happens is the loan goes to Treasury Offset. Again, they don’t have the same tools as the IRS. Treasury Offset is its own distinct process. The primary actions they can take are garnishing wages, garnishing Social Security, and taking tax refunds. That’s it for most people.
If you do business with the government, they can intercept accounts receivable coming to you. I’ve used this example before: I had a doctor who collected Medicare and Medicaid reimbursements, and they had a $16,000 reimbursement taken. So, they can do that, but it’s not the same as the IRS. Don’t confuse the SBA with the IRS—it’s not the same thing. Even when Treasury Offset is involved, you’re not dealing with the IRS.
It’s Unlikely That You Pledged Your Personal Residence As Collateral For Your EIDL Loan
Next, you did not pledge your home. I have yet to come across anyone who has pledged their personal residence as collateral. I’ve had a few people tell me they thought they did, but it turned out they either didn’t understand what a personal guarantee meant and assumed it meant their house was pledged, which is not true, or they misunderstood the requirements. For loans over a certain dollar amount—$500,000, I believe—they did require real estate collateral, but it was commercial real estate, not personal residences.
In the loan documents, it even states that if the commercial real estate is also a primary residence, it should not be taken. So, all that is to say, I’ve had a few people tell me they believed they pledged their home, but upon further review of the loan documents, that was not the case. If you think your home was pledged, I would recommend having someone review your loan documents to verify that, because at this point, I’ve done well over a thousand consultations, and I have not had a single person who pledged their home for an SBA EIDL loan.
(Still) No Offer in Compromise for SBA EIDL Loans.
(Note this true of OIC as of Sept 2024. If it’s beyond that, my blog or Youtube channel for most up-to-date info).
Next, I continue to get questions about offers in compromise. Unfortunately, it’s still not available. I get two to three emails a week from people asking about it, and I’m not sure where these people are finding me since they’re clearly not watching this YouTube channel. It’s been years now since we first submitted offers in compromise because the SBA sent us paperwork, and they immediately declined them. Since then, I have not had a single person tell me they’ve been successfully approved for an offer in compromise. I’ve had a handful of people tell me that the SBA sent them the documents, and I said, “Great, I hope this signals a change, but let me know if they actually accept one, because I’d be really interested to hear that.” Unfortunately, thus far, I have not heard back from anyone.
Hardship Accommodation Program (HAP) Is All The Help There Is (For Now)
Finally, people want to know what help or programs are available beyond the hardship accommodation. There are none. If you haven’t watched this channel before, I’ll tell you real quick: they offer up to four hardship accommodations. The first one would be 10% of your monthly payment for six months, and the second one would also be 10% of your monthly payment for six months.
The third hardship accommodation is 50% of the regular payment, and the fourth is 75%. That’s it. That’s the only help they’re offering. Now, I know people often come to me and ask, “What if I just make half payments? Will that at least show them that I’m trying?”
My view is that it just puts you into default more slowly. So instead of missing an entire payment and being one month behind at the end of the month, now you’ll be half a payment behind. In six months, you’ll be three payments behind instead of six. So, while it certainly delays the default and referral to the Treasury Offset Program, it’s not the kind of situation where they’ll give you a reprieve indefinitely just because you’re making partial payments. They might give you credit for half a payment, but it doesn’t mean they’re going to say, “Oh, well, we’ll just let them keep paying that.” Unfortunately, that’s not the case.
So, that’s it. Thanks for checking in. Don’t forget I have tons of other EIDL related videos and blog posts on my website, JasonTees.com.
