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You can’t file for bankruptcy when it comes to SBA….it’s a government loan! It can’t be discharged!
I mean, honestly, you can just Google that one. People seem to confuse student loan debt with SBA loan debt. People, they are not the same thing.
I know this because in my time as a workout consultant, I have helped people negotiate the releases of liens on their personal residences following a personal bankruptcy. That’s right. The people filed for personal bankruptcy, had their personal guarantees discharged, and then we went back and negotiated a release of the lien after the fact. I’m not sure where people get this information other than they just like to speak in order to be heard and don’t particularly care if they’re right or not. I guess that’s Reddit and humans in general though.
You Need the SBA’s Permission to Close Your Business
The second dumb thing that I’ve read is that there’s a person on Reddit who seems to know a few things and probably read a few things, but doesn’t really know how any of this works In practice, I find them to be really annoying because I worry that people are gonna follow their advice even though they don’t have any direct experience with EIDL loans other than their own.
So what this person constantly is telling people is you need to get the SBA a’s permission to close your business. Why should anyone worry about getting SBA permission? Are you going to stay open if the SBA says no? I haven’t bothered to go and look to see if this person’s even right, but even if that is written in the documentation, it means absolutely nothing. It really doesn’t.
If somebody can’t afford to pay their loan, then they’re gonna default either way. It doesn’t matter if they got permission. It’s not like if you close your business and continue paying that the SBA is gonna give you a hard time, given the reality that there are millions of these loans out there that aren’t being paid.
Do you really think the SBA is gonna go through each and every loan that is being paid to ensure that the business is still open? The answer is no.
My friends, I’ve had a couple of exchanges with the person who posted this, but I got tired of their nonsense, so I just blocked them. That’s one of my favorite tools on Reddit. I’ve stopped arguing with people cuz I found that it’s pointless. Nobody wants to be right. Sorry. Nobody wants to get it right. Everyone just wants to be right. So there’s really no point in debate.
You Can’t Settle an SBA Loan – This is the Government!
Next, another falsehood that people like to perpetuate is number three, that the government doesn’t settle loans.
“These are government loans” they yell, “so they can’t be settled”.
Of course, if this was true, I wouldn’t have been in business since 2009, as it turns out, unless I’ve been doing something else all that time, my whole life has been negotiating the settlement of SBA loans. So to claim that no government loans can ever be settled is a ridiculous statement that is patently false.
Now, when it comes to EIDL loans, it is accurate to say that the government is not currently entertaining offers. But this is only specific to EIDL loans. Why they’re doing this is unclear. I had someone in one of the Reddit threads say that the loan officer at the SBA told him it was because the loan wasn’t seasoned, which sounded ridiculous to me.
I checked the Liquidation SOP for disaster loans, and do not see any mention of “seasoning” when it comes to Offer in Compromise, so I just don’t know what else to say. What I can say is that historically disaster loans are eligible for offer in compromise.
So I’ll reserve judgment partially on this one. The government loans can settle, but it remains to be seen if EIDL loans will ever be able to settle and whether seasoning has anything to do with it.
Will The SBA Take My Cat and Favorite Coffee Mug?
Next, people are very concerned about what the liability is, if their business is liable or if they signed a personal guarantee. And so people on Reddit will say, “oh, they’re gonna make you sell all your personal assets”.
Now, this is not something I’ve ever seen any lender do. You do not have to worry about the SBA sending someone to your house to take your couch and your clock and your microwave. It’s just not something they do. Even the most aggressive banks, if they obtain a judgment, they want the low hanging fruit.
The low-hanging fruit would be your wages, your bank accounts, or maybe equity in your home through a lesser extent, maybe a car. But that’s not even something that I’ve seen.
So when you think about a personal guarantee, yes, there’s reason to be concerned, but no, they’re not gonna come and take your chihuahua. In most cases, they just refer defaulted loans to the treasury, and the treasury only has a couple of collection tools that they typically will use.
Here are the three that I typically hear about. First they will try to garnish wages and then second, they will garnish payments that come from the government, which most common forms of that would be social security or tax refunds.
Beyond those 3, I have not seen the treasury take any more aggressive collection action. So even if you default on these loans, it’s not as scary as you think. They don’t have as many aggressive tools at the treasury and the SBA is very unlikely to even sue people in the first place.
And even if they did, they’re not taking your doormat. They’re not taking your, you know, bar cart and your lamps. They’re just, that’s just not something they do with personal judgments.
Can the SBA Sneak in a Personal Guarantee Afterwards?
Number five… this was more of a question. I had somebody come to me, they took an EIDL loan that did not have a personal guarantee, which hey, good for them, right?
But they were so concerned that somehow the SBA was gonna screw them, that they actually did ask me, “is there any way that they can amend the loan documents after the fact to make it so that we are liable?”
And the answer to that is no. That’s not how loan documents work.
You can’t just change the documents after the fact without both parties agreeing to it, so much in the same way where that if you personally guaranteed the debt, you can’t after the fact say, “you know what? I changed my mind. I’m not gonna personally guarantee this.”
Once you signed the guarantee, you’re on the hook until they agree in writing to let you off the hook. And so along the same lines, if you took a loan without a personal guarantee, the SBA can’t then turn around and say, “you know what? We changed our mind. We’d like to take your personal guarantee.”
It’s not something they’re allowed to do and not something you should worry about. I understand having a healthy distrust for the government, but this takes it a step too far.
EIDL and PPP Are the Same Thing!
I think finally the thing that really drives me crazy is when I read people posting on Reddit, “they forgave PPP, they should forgive EIDL loans too”. This is ridiculous. And then, you know, they go on a conspiracy theory rant that you know, everyone’s corrupt and have to get them and blah, blah, blah.
Here’s the thing, in my opinion, EIDL and PPP were not the same thing. PPP loans were given with the express intention of being forgiven. And every everyone that took them knew that. So everyone knew as long as you spend the P P money on qualified payroll expenses, they were going to forgive that.
Now, if you used it for something else, no, all bets are off. They’re not gonna forgive that.
Now, let’s contrast that with EIDL loans. Everyone who took these EIDL loans understood that this was a loan that needed to be repaid. There was NEVER any discussion about, “well, if you take it and use it for a certain purpose, that will forgive it.”
So everyone that took these loans knew what they were signing up for. If you took this loan a year ago and now you’re sitting here saying, well, this loan should be forgiven too because of PPP, then in my opinion, that’s ridiculous because you knew what you were signing up for.
And while I understand the desire to have the debt erased, you signed up for it. I mean, you signed the personal guarantees, you signed the note, you signed the security agreement, and you know, if you say you didn’t understand them, then that’s on you. And if you did understand what you were doing, but now claim that for some reason you shouldn’t have to pay it back, then I would argue you did not borrow in good faith. So that’s it.
Anyway, that’s my list of six really dumb or wrong things that people talk about on Reddit when it comes to EIDL, forgiveness.