Do you have an EIDL loan that’s in trouble? By in trouble, I mean maybe went out of business. Maybe your business does not have enough money to repay the loan. Let’s talk about what happens since the repayment area is approaching.
You took out an EIDL loan, an Economic Injury Disaster Loan, and your business did not make it through the COVID process, it closed down. If you closed down your business, then we need to look next at the amount of the loan to determine what happens. If your loan was $25,000 or less, it was considered an unsecured loan.
So it was not secured by any assets, nor did it have any personal guarantees. So you’re basically off the hook and the SBA is out of luck. They cannot pursue having you repay that loan if your business is closed.
Now, what is closed? If you are an entity like an LLC, an INC, a corporation, you need to file a disillusion through the state to be technically closed. If you have not done that, I would suggest doing that as a precautionary measure. Make life easier for you, also any checking accounts or assets in that company’s name should be gone.
Next, If your loan was over $25,000, but under 200,000, so that range between 25,000 and 200,000 is a secured loan. The loan is secured by the assets of the business. So if you fail to repay your loan, the SBA can take possession of the assets of your business.
What if those assets don’t equal anywhere near the repayment of the loan? Well, they’re outta luck. That’s all they can get. But it may be a little cumbersome in the process to determine that you don’t have the assets to pay that back.
Also, let’s clarify a little bit. What are assets? Assets in this case are assets that were secured by a UCC filing Uniform Commercial Code. That’s generally like if you take out a lease, they’ll file a UCC filing on the piece of equipment you leased. It’s just collateral saying that that equipment is the basis for the collateral of some note. So the 200, under $200,000, but over 25,000 is secured by the assets of the business.
So let’s say you’re a retailer restaurant, that the assets of the business would be your equipment, your furniture, fixtures, computers, things like that.
Now, honestly, used equipment is kind of a dime a dozen these days, so it’s not really worth much. You may not find that they do anything about that loan either. We’re yet to see because we haven’t really hit the deadline where the SBA really knows who’s going to pay back their loan or not.
If your loan is over $200,000, which would’ve happened through round two, remember that round one of the EIDL loans only went up to $150,000. In round two, they made that go up to 500,000 and they enticed you if you’d like to take out more money. And somebody at the SBA probably said, “Oh, we forgot”. There’s no personal guarantee. We should probably try to get one.
So if you expanded that loan and went over $200,000, you do have a personal guarantee attached to that loan. That means that you are personally liable to repay it. Even if the business closed, they could come back and have you personally be expected to pay that note off.
So make sure that even if your business is closed, if you are over $200,000, you need to have a plan in place. Your worst case scenario is personal bankruptcy.
Otherwise, I would suggest that you format a way that you can repay that loan, continue to make the payments over the next 30 years.
We will keep you posted if we hear of any further developments as the repayment structure begins. Those just began here in November of 2022 so let us know. Also, if you have any developments or here of cases where loans are renegotiated, refinanced, or written off with the SBA, we’d love to keep that information and help that news spread out to everybody who can use that.
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Donna Bordeaux, CPA with PYOPAccounting.com
Creativity and CPAs don’t generally go together. Most people think of CPAs as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly, and knowledgeable can be a part of your relationship with your CPA, as demonstrated by Donna and Chad Bordeaux. They have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.