(2023 Update: I have created a 90-minute audio course that specifically discusses all the common questions borrowers ask me on a daily basis about SBA EIDL loans. Learn more HERE.)
Hey guys, it’s 2022. And I think it’s time to talk about the state of the union. As far as the SBA is concerned, as everybody knows over the past couple of years, free money has been flowing like crazy.
When the pandemic started, I actually said to people that I didn’t see how businesses were gonna survive unless the government literally paid their loans. And guess what? They literally paid SBA loans in some cases up to a year. It’s really the only solution that was viable.
There are so many businesses, especially retailers, who could not operate. There were so many restaurants that were operating at a fraction of what they were. Any business that was related to office work, like cleaners or selling supplies was just completely decimated. So the only way that these businesses were going to be able to get by would be if the government actually covered the payments for them and to their credit, that’s what they did.
They did it in the form of two main programs. One was the paycheck protection program, otherwise known as PPP. And then the other one was through the EIDL, which were economic injury, disaster loans.
The interesting thing about the PPP loans was that they were intended to be 100% forgivable, which is good. It was a recognition that if people used the money correctly, that the business owners were not going to have to pay it back.
Now, with the EIDL loans, they were not presented as free money. The whole idea behind them was they were gonna be paid back over an extremely long period of time. I believe it was 30 years and this was a great lifeline for a lot of businesses.
But ultimately, and I think the SBA knew this, a lot of these businesses who took EIDL loans were going to close, just like I had a friend who had a pizzeria. He was in one of the cities that got hit very hard, and there was no chance that he was gonna be able to pay back that money.
He ended up closing his business and, he was very worried about whether or not he was gonna be able to repay this loan, and what the SBA was gonna do to him. Ultimately he didn’t pay back the loan at all. He just walked away from it and I think that’s what you’re gonna see a lot of. Even though the SBA gave these loans to businesses, a lot of them didn’t have personal guarantees attached.
So what does that mean is if your business closes? Let’s say I have a business entity and it’s called Jason Incorporated. If the EIDL loan was given to Jason Incorporated, and they didn’t ask me, Jason, to personally guarantee it, I don’t have to repay them out of my own pocket.
They can go after Jason incorporated. But the issue with that is, (and let’s say Jason Incorporated, is a pizzeria) my pizzeria didn’t really have much in the way of assets other than a couple of ovens and a mixer. There’s really nothing to pay it back. So the SBA one would have to go after the assets and liquidate them, which really the SBA is not set up to do that sort of thing. And two, if that business isn’t operating, aside from the assets, there’s really not much there to get. Sorry SBA, go pound sand.
Bottom line: the SBA is gonna be out a ton of money when it comes to these EIDL loans. I’m getting a ton of calls from people. Payments are gonna start being due for a lot of them soon. And people are concerned with exactly, what do they have to do? What risks are they running by not making payments?
First, I tell people that they are not alone. There’s a lot of people who are gonna be going through this. And the government had to expect that a significant portion of these loans were going to be in default and ultimately not repaid.
So, if you are in the boat where your business is on the verge of closing, or you simply can’t make your EIDL payments, you are not alone. There’s a lot of people who are gonna be in the same boat as you.
If anyone has questions about this, I offer case evaluations and give you my thoughts as to, what the best course of action is. You can choose a calendar date and time here.