Hi folks. I know articles can be helpful, but nothing can replace a conversation. If you’d like to schedule a consultation, you can do so here.
Today, I want to talk about EIDL (Economic Injury Disaster Loans) loans that were provided by the SBA during COVID. I get a lot of questions about it from confused borrowers.
Everyone knows that regular SBA loans can be settled. Primarily, I handle the SBA 7a loans. I have handled hundreds of those over the years.
Because EIDL loans are relatively new to most people (they’re actually new to guys like me, too), it can get confusing as to what your options are if you’re unable to repay your EIDL loan.
The main question that people ask is can an EIDL loan be settle through the offering compromise process, like a regular SBA loan. The answer to that is that you can submit a settlement offer through the offer in compromise process, but at this point it’s unknown what the SBAs appetite is to settle these types of loans. I know that’s not a great answer.
Because the concept of settling an EIDL it’s all relatively new to us. It’s hard to give guidance as to whether or not the SBA will give serious consideration to settlements. I can tell you when I first started out, I tried to settle SBA debt that had been referred to the US Treasury.
I assumed that the process for settling with the Treasury (sometimes called the Bureau of Fiscal Service) was the same as settling with the SBA. I could not have been more wrong.
When things get referred to the US Treasury, they’re typically very difficult to settle. How difficult is hard to say, but definitely more difficult than if you tried to settle directly with the SBA or through your lender.
So when we’re looking at the prospect of settling EIDL loans, it’s a little bit of a crapshoot at this point (March 2022). With that said, there are certain situations when it makes sense to attempt to submit an OIC for your EIDL loan, and others when you are better off not submitting an Offer In Compromise.
When the SBA gave EIDL loans, they limited personal guarantees to loans over $200,000. This means if your loan was $200,000 or more, they likely did require you to personally guarantee the debt.
On the flip side of that. If you borrowed less than $200,000, this means that you likely did not sign a personal guarantee. There’s a world of difference between those two scenarios.
Now, just because you’re not personally liable, doesn’t mean that there’s nothing that the SBA can do to collect from you, but it’s certainly more advantageous to not have offered your personal guarantee.
I would venture to say that most borrowers who offered a personal guarantee really should explore ways to resolve it without it being referred to the Treasury.
If you’ve read any of my articles about the Treasury, you’ll know that the vast majority of them don’t settle. It’s unfortunate, but that’s the reality.
I spend a lot of time explaining people’s options regarding SBA files that have been re referred to the Treasury. But in most circumstances, part of that conversation includes explaining that a settlement isn’t very likely.
Just yesterday, I had a consultation with a gentleman who owes $800,000 on a former SBA disaster loan that has since been transferred to the Treasury. He wanted to know if there was any way to settle.
I told him that based in my experience, the bests he’s going be able to do is knock about 20% to 30% off of that (what really sucks about that is that 20% to 30% off is that it basically represents the original loan balance before the Treasury nailed you with a 28% penalty).
And even in that case, they would want to be paid in a lump sum. He simply did not have that kind of money. This is true of most people with loans at the Treasury due to their onerous demands.
We went on to discuss what options he could pursue. He could offer to make a monthly payment. My take on that is that would be like throwing money into a black hole.
When they ask you to make payments, they make no promises of any particular settlement terms in the future, which means you could be making payments indefinitely and still have them take collection action against you.
So, anyway, back to EIDL loans.
Depending on how the SBA wants to play it, EIDL loans could be that difficult to settle as well. At this point, nobody really knows.
What we do know is that in all cases, the SBA did take your business assets as collateral. This means that in theory, the SBA could replevin (which means just to take the equipment back) the equipment, sell it and apply it to your loan balance.
From a practical standpoint, I have my doubts as to whether or not the SBA will actually pursue your business assets for a couple of different reasons.
First, The SBA isn’t really set up to do that sort of thing. They don’t have the manpower. It’s a logistical hassle to arrange, to have equipment removed and auctioned.
Most banks don’t even want to deal with it. So you can imagine that the SBA isn’t particularly adept at handling this sort of thing, either.
If I had to guess, I would say most businesses that close will not hear from the SBA in terms of selling the assets. They may ask you, the business owner to sell the assets, but it’s unlikely that they’ll go out of their way to handle it themselves. That’s not a fact, that’s just my guess.
But considering that the SBA doesn’t have the manpower to simply make collection calls and follow up on delinquent loan payments (sometimes people don’t hear from them until years after they’ve stopped paying), it seems unlikely that they’ve got the manpower to come and get your pizza oven, and tables and chairs.
So getting back to your SBA EIDL loan. While we don’t know what their appetite is for settlement at this point, the situation needs to be explored.
Here are some questions that, depending on your answers, can help determine your course of action with respect to your EIDL loan:
- Did you personally guarantee your SBA EIDL Loan?
- What collateral did you pledge, and how much is it worth?
- Can you afford to repay the EIDL loan?
- Do you plan to keep the business open, or will you close it?
- Do you have other debt (SBA and non-SBA) that would need to be settled too?
If you’d like to discuss your options, you can schedule a case evaluation with me here.
