EIDL Loan Forgiveness: How To Manage SBA EIDL Loans Effectively?

The COVID-19 pandemic saw many businesses availing themselves of loans from different organizations to keep their business intact. EIDL Loan forgiveness is when the SBA decides to forgive the EIDL loans they offered during the pandemic. 

In this article, you will learn about SBA’s EIDL loan option and how it works. Apart from that, you will also learn a bit about EIDL loan forgiveness. Moreover, this article will also show you whether your business is eligible for this forgiveness. Hence, to learn more, read on to the end of the article. 

What Is The EIDL Loan?

To help businesses get access to loans, the Small Business Administration (SBA) came up with the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL). They continued this along with the business loans that SBA generally offers. 

Also, if you have applied for them, the signs that your loan will be approved are high. However, PPP was a forgivable loan, and EIDL was not. For example, many businesses that took the PP loan sought forgiveness. In many cases, the SBA allowed loan forgiveness to these businesses. 

However, since the EIDL is a non-forgivable loan, many businesses became defaulter on their loans even after seeking loan forgiveness. Now, the SBA has ended the deferment on EIDL loans. 

What If You Fail To Pay Your SBA Loan?

If you cannot repay your SBA loan, your lender will classify your case as loan-delinquent. In this case, your lender will contact you to get more information. Moreover, the lending company will also insist you repay your debt. Here, if you fail to comply with their needs, they will mark you as a loan defaulter. 

Becoming a loan defaulter is not a good situation. Here, your SBA lender will contact SBA to mark you as a loan defaulter. Then, they will try to collect the debt with the help of a debt collection agency.  

Apart from that, depending on the clause of your loan agreement, the lender can also seize your collateral. Generally, when offering a loan, lenders ask for collateral to secure the loan. Additionally, if the loan agreement says so, the lender can seize or sell your personal assets if you have a personal guarantee.  

Hence, you must ask beforehand, “Is a small business loan secured or unsecured?”

However, if your personal assets and collateral are insufficient to repay your debt, the lender can file a guarantee with the SBA. In this case, the lender is asking the SBA to repay the portion the government guarantees as a security to the lender. 

Here, you need to know that even though SBA repays the lender, you will still need to repay the debt. Basically, the SBA will send you a request for payment in the form of a 60-day demand letter. Here, you can repay the loan within this time or submit a compromise offer. 

EIDL Loan Forgiveness: How Does It Work?

Basically, the SBA started the Economic Injury Disaster Loan (EIDL) loan program to provide temporary financial relief to businesses during the COVID-19 pandemic. Here, the main intention was to help businesses cover their operating expenses. Apart from that, businesses also used these loans to meet their financial obligations during the pandemic. 

Here, SBA offered businesses with loans of up to $2 million. Additionally, businesses also received favorable terms with a long repayment time and low interest rates. 

Moreover, SBA also developed the Hardship Accommodation Plan to help small businesses pay off their EIDL. This helped businesses mitigate the cost of the loans. 

What Is An Offer In Compromise In SBA Debt?

There are alternatives to EIDL Loan forgiveness. If you struggle to repay your SBA debt, you can get a potential solution in the Offer in Compromise (OIC) clause. Basically, with this agreement, SBA allows you to settle your debt with a lower amount. That means SBA allows you to pay less to close your loan. 

However, if you want to qualify for an OIC agreement, you must show the SBA that you are really unable to repay the total amount within the time limit. Hence, you must provide a comprehensive report of your financial information. Actually, you are trying to prove you cannot repay the SBA’s debt obligations. 

Additionally, it would help if you also showed that your business operations are at a cease. Also, your assets must be fully liquid, and your business use the proceeds to lower outstanding debt. 

Here, the consequences can escalate if you fail to agree with the SBA or if you ignore its demands. In such situations, the SBA can transfer your account to the US Treasury Department.  

Consequently, the US Treasury can use various initiatives to claim repayment. Here, it can use various methods like tax refunds, withholding wages, or providing government benefits.

However, the Treasury can even take legal action against you if the case is more severe. On the other hand, the Treasury can even file a lawsuit against you. 

EIDL Loan Forgiveness: How To Prevent A Default On EIDL Loan?

As a business owner, being an SBA loan defaulter can be catastrophic for you. However, with the help of some strategies, you can avoid this. 

Firstly, you need to reevaluate your finances. This will give you a better idea of where you can decrease your expenses. As a result, you can reallocate your money to pay off your loan.

Apart from that, you can also choose a business debt consolidation loan. This can help you, especially if you struggle to pay off multiple loans. 

However, if you are really in the stretch, you must reach out to your lender to negotiate the loan: 

• Request to lengthen the term of your loan to lower monthly payments 

• Paying a big amount upfront to lower the upper limit of the loan. 

• Request for a break in repayment for a period. 

• Paying only the loan interest for some months. 

On the other hand, it is a better idea to consult a business professional or an attorney. This way, you can assess your financial situation better and learn how to manage your payments. However, if the situation is too serious, you can ask for help from a business professional if you file for bankruptcy. 

Additionally, you can also evaluate whether you can take advantage of the Employee Retention Tax Credit (ERTC). This will help you collect some money that you owe for your loan. 

Related: What Are Small Business Loans? What Are The Types Of Small Business Loans

EIDL Loan Forgiveness And Treasury Deferment 

The goal of the EIDL program was to provide financial relief to businesses during the COVID-19 pandemic. Basically, SBA’s intention was to provide low-interest loans to help businesses cover their operating expenses. Apart from that, businesses could also meet their other financial obligations during economic hardships. 

In fact, the program provided loans of up to $2 million along with low interest rates. Moreover, businesses also received long repayment periods and favorable terms. 

However, the SBA developed the Hardship Accommodation Plan to ensure that many businesses do not get into a default situation. As per this plan, SBA removed the loan cost for a short time. This helped businesses with some relief as they worked towards earning a stable ground. 

Despite various efforts to provide relief to businesses, almost $30 billion in SBA loans remained unpaid. If you are a defaulter on an SBA/EIDL loan, you might have already received a notice from the Treasury. 

However, if you are still struggling to pay your EIDL loan, you can use the strategies in the sections above. For instance, you can contact your lender and use the ERTC option in your favor. This will give you breathing space, which will help you move out of the default situation. 

Additionally, you must ensure that you implement those strategies with the help of a business professional, like a CPA or an attorney.  

However, if you are currently repaying EIDL loans, you can still experience demands from the Treasury.  Moreover, you can face trouble finding out why the SBA sent your loan situation to the Treasury. In these cases, you can contact the NFIB directly with your story.  

Determining Personal Liability To The SBA For EIDL Loan Forgiveness 

You are personally liable for a loan if you are: 

• A sole proprietor 

• an owner of a business with a debt of a traditional SBA loan or 

• an owner with an EIDL balance of more than $200,000. 

Hence, in such cases, to get an SBA or an EIDL loan forgiveness, simply dissolving your business will not help. Even if you do not pay the loan, the SBA will try to collect the loan from you personally. 

For instance, they may repossess your collateral, take a levy on your assets, or report you to the Treasury. Furthermore, you can even face legal trouble if you do not file for bankruptcy. 

Do you have more information regarding how the EIDL loan forgiveness works? Please share them in the comments section below. 

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