An Interview with Glamis Haro, Senior Business Advisor, Columbia University Harlem-Small Business Development Center

During the height of the pandemic, the SBA instituted a loan program for businesses in need of immediate assistance. Now, after a thirty-month reprieve, it is time for businesses to repay the loans and many businesses are still struggling and unable to pay. In this interview with Glamis Haro, Debra Guzov explores the implications of non-payment as well as options for businesses that are unable to meet their obligations.

If a business is unable to meet its obligations, will the principal(s) be personally liable for repayment?

It depends on the size of the EIDL loan. Traditionally, loans in the sum of $200,000 and below were not required to be personally guaranteed, and loans above $200,000 were required to be personally guaranteed. It is essential to review executed loan documents which can be accessed through the SBA portal:  https://www.sba.gov/funding-programs/loans/covid-19-relief-options/covid-19-economic-injury-disaster-loan/manage-your-eidl#section-header-1

Also, some businesses modified their loans to increase the amount borrowed. If the modification tipped the loan above $200,000, the entire loan amount is likely personally guaranteed.

Will the SBA forgive an EIDL loan?

The SBA has repeatedly stated its intention to pursue all unpaid EIDL loans as it is required to do by the underlying legislation, pursuant to which COVID-19 EIDL loans cannot be forgiven and are required to be repaid. That said, some businesses did receive grants during the pandemic, and if a business has met the terms of the grant, the grant will be forgiven.

Will the SBA work with a company experiencing continued hardship?

The SBA has a Hardship Accommodation Plan. Borrowers can apply for accommodations through the SBA portal. The ability to qualify through the portal is based upon the size of the loan. Loans of $200,000 and under will likely qualify through the portal. Loans that are larger will require the borrower to call the SBA directly. The accommodation for EIDL loans of $200,000 and under will require that at least 10% of the monthly payment be made by the borrower for a period of six months. Thereafter, regular payments must resume. Notably, interest will continue to accrue during the accommodation period. More information on the SBA’s Hardship Accommodation Plan may be found through this link: https://www.sba.gov/funding-programs/loans/covid-19-relief-options/covid-19-economic-injury-disaster-loan/manage-your-eidl#section-header-

Will the SBA accept an Offer In Compromise if a company cannot pay its EIDL loan?

It appears that the SBA may permit an Offer In Compromise (“OIC”) in the event that a company is experiencing financial hardship. An OIC is a process whereby a borrower offers up some portion of payment toward a loan—usually already in default— to settle the debt permanently and avoid litigation or future collection efforts. Earlier this year, there was an indication that an OIC was not an option on an EIDL loan, but recent information has surfaced demonstrating that the SBA may consider OICs. The lack of an OIC option for EIDL loans was a departure from non- EIDL SBA loans which allowed compromise agreements. Historically, the SBA required a business to be closed or sold prior to any OIC submission.

What if bankruptcy is the only option?

Remember that there is no way to facilitate a straight loan liquidation. In the event that a business owner has explored all options and a sale of the business is not possible, liquidating a business and bankruptcy would be a last resort. Keep in mind that if there is a personal guaranty, corporate bankruptcy will impact personal obligations. This link sets forth the SBA’s guidance on bankruptcy as well as sale and closure of businesses: https://www.sba.gov/business-guide/manage-your-business/close-or-sell-your-business#section-header-10. Before taking this step, it is essential to consult accounting and legal professionals.

What would be your best advice to a business that cannot meet its repayment obligations?           

Reach out to the SBA immediately. It is important to be proactive. Further, the SBA offers financial counseling and businesses should reach out for help. Find a Small Business Development Center in your community. https://www.sba.gov/local-assistance/. Finally, check the SBA website regularly and follow the SBA on social media as there will likely be other programs relating to repayment of EIDL loans coming up, but there are no details currently available.