Note: This article is a lightly edited transcript of the video below.
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Hey guys, my name is Jason. I’m the founder of Distressed Loan Advisors. If you wanna book a consultation with me, you can do that here.
Today, I’m gonna talk about seven common questions I get about EIDL loans and personal guarantees.
So here we go. I wrote them down, so I’m gonna be looking down periodically.
One, one question that I’ve got from people is, can they add a personal guarantee to my loan after the fact? And the answer is, unless you agree to it, no.
So, you know, the way these loans work and loan documents in general is, you agree to the terms at the outset of the loan, which means whatever you agree to at the beginning, any changes thereafter really would need to be agreed to by both parties.
So if you made some sort of request to the SBA, like release collateral or something like that, they could at that point say, well, “we’re willing to do it if you’re willing to sign a personal guarantee” when there wasn’t one previously. I haven’t heard of anything like that, so it’s unlikely.
But the question that I’ve actually gotten from people is, well, once I default, is there any way that they can somehow, you know, change the fact that I didn’t personally guarantee to begin with? And the answer is no.
They can’t, just like you can’t release yourself from liability without their consent, they can’t add, you know, additional guarantors or add guarantors, period, without the guarantors consenting. So that’s number one.
Number two, if I personally guarantee, does that mean my house is pledged? No. A personal guarantee is not the same thing as pledging collateral.
And I know sometimes people will conflate them because I’ll say, did you have a personal guarantee? And they’ll say, yes.
And I’ll say, okay, did you pledge any collateral for your loan, like commercial real estate? And they’ll say, well, yes, because of the personal guarantee that’s pledged – and that is not accurate. In order for them to take a lien on real estate, you would have to consent to that. They would make you sign a mortgage.
And I’ll tell you for EIDL loans, there is language in the documents that basically says they’re not taking personal residences. I’ve done more than a thousand consults at this point. I am yet to come across anyone who had to pledge their home for an EIDL loan, which is great.
And even in the event of a default, you know, people wanna know, well, will they come after my house somehow that way? And the answer to that is in theory, they could, but in practice, they have not.
And there’s kind of a couple of parts to that. One, the reason I say in theory is because if you personally guaranteed the debt, a lender could sue you, get a judgment, and then depending on what state you’re in, put a judgment lien on your house.
The SBA generally has never done that. I’ve never seen them do that. And I’ve definitely never seen them do that with an EIDL loan.
So at this point, even if you personally guaranteed your EIDL loan, it’s highly unlikely that your home is pledged. All right, I’m losing track of my number count, sorry. So that was the third.
Number three, will they release me from my personal guarantee if I sell my business? No. What I’ve heard from people is that if you wanna sell your business to someone else and that party wants to take over the loan, what the SBA has told people is that you can add someone to the loan, but we’re gonna keep you on there.
So in other words, if your buyer defaults on the loan, you’re still gonna be liable. I haven’t seen those transactions go through. I think they’re far and few between, to be honest. So that one is just based on what other EIDL borrowers have told me.
Next, can I file for personal bankruptcy? I don’t know if you personally will qualify for personal bankruptcy and if you do, what type, but I can tell you that EIDL loans can be included in bankruptcy, just like any other type of loan. They’re not like student loans.
And I say that with a grain of salt. I am not a bankruptcy attorney. So if you want bankruptcy advice, you should consult with them.
I’m just sort of giving you my experience as a former workout officer and having dealt with clients who have filed for personal bankruptcy.
Next, I get this every once in a while: are they gonna put me in jail if I don’t make my payments? And the answer is highly unlikely unless you committed fraud. There are people who are going to jail because they lied on their applications.
They lied about having a business, how big their business was, how many employees, stuff like that. And then they went and bought boats and cars and houses and so they got caught. And so every day I see articles of people who are going to jail because they committed fraud.
But there’s a big distinction between that and Jason’s Pizzeria who borrowed a couple hundred thousand dollars during COVID because I couldn’t make rent and nobody was coming in and now business has not returned to what I thought it was gonna be and I just defaulted. In those cases, that is just a default on a loan. There’s no chance you’re gonna go to jail just because you defaulted on the loan.
Again, the fraud element is the people who are really getting in trouble. Next, what is the difference between my loan being referred to the Treasury.
So what’s the difference between your loan being referred to the Treasury and being put into the Treasury Offset Program?
For those of you who have followed along with all of my videos, you’ll know that a month or two ago, the SBA reversed course on the referral of servicing of EIDL loans to the Treasury.
So what was happening when the loans servicing was referred to the Treasury, that’s when the Treasury was adding 30% penalties and you had to deal with them if you wanted to work something out, you had to call them if you had questions and the SBA was just telling people, sorry, you have to deal with Treasury. That has since changed.
The SBA pulled all of the loans back and they said that they’ll now hold them. Loans in default can be held for up to two years. So it means essentially that if you have questions about your SBA loan, even if you’re in default, the SBA will still continue to service it.
So if you wanna make payments, if you have questions, if you wanna talk to them about your loan, it is the SBA that you’d be talking to. With that said, if you are in default, they can still enroll you in the Treasury Offset Program even if your loan is being serviced by the SBA.
And the Treasury Offset Program I’ve talked about a lot, it’s essentially the government, the federal government’s way to collect from you without having to sue you.
So they’ve got certain authority to do things that normally lenders couldn’t do, but the federal government has some statutory authority here. They can garnish wages up to 15%, they can garnish Social Security up to 15%, and they can take your tax refunds. There’s other things they can do as well.
It’s basically any federal government payments. There’s a chance that they could take them. So like if you’re a physician and you get, I can’t remember if it’s Medicare or Medicaid, but one of those two, maybe both.
I’ve seen physicians expecting payments from the government and they got taken because they were in default in their loan. So anyway, that’s the distinction between your loan being referred to the Treasury and being in the Treasury Offset Program, not the same thing. And then the last one, which I kinda covered, but I’ll cover it specifically.
Am I gonna get sued by the SBA? At this point, other than the people who have gone to jail for fraud, I have not seen anybody get sued. Everyone who’s defaulted, just like a regular run-of-the-mill straight-up default, people are being put in Treasury Offset Program. I have not seen anyone get sued.
It doesn’t mean it can’t happen, but I’ll tell you in the 15 years I’ve been doing this, once things go to Treasury, very rarely is there any litigation. The only exception to that would be if the Justice Department got involved, and I see that very infrequently, maybe once or twice a year. So it doesn’t happen that much.
So if I were a betting man and you didn’t pay your loan, I would say it’s unlikely you’re gonna be sued. It is likely you’d be put in the Treasury Offset Program. It doesn’t mean that can’t change because we all know that politicians sort of read the direction of the wind and sometimes they’ll lean into that.
So in other words, if it’s popular to help small businesses, maybe someone will push for offer and compromise. If it’s popular to do more to collect on these loans, then maybe they change course and they do start litigation. I don’t have any information to support that.
I’m just sort of saying that in these situations, we have to make a distinction between what they can do and what they are doing in the real world because it’s not always the same thing. And all we can do is base our decisions on that information. And so at this point, I’m not aware of anyone being sued by the SBA over these defaulted loans outside of fraud.
And so I’m gonna assume that that’s gonna continue to be the case. And if it’s some point changes, I’ll certainly let you guys know. So that’s it.
Those are the top seven questions that I often hear from people with regards to their EIDL loans and personal guarantees. Thanks for checking in. And we’ll see you next time!
