There’s too much room for nuance and a typical answer to a specific question posed by a business owner must be crafted to include the unique traits of that business.

This has been our experience in working with Small Business Owners and answering their questions during and after the SBA’s COVID-19 Economic Injury Disaster Loan (EIDL) program. No two situations are the same, and we find that our responses to the queries we receive must resonate with each different business situation.

A good example is a defaulted EIDL. The business closed due to no fault of the business owner; these things happen out there in the wide landscape of the small business world. The business has a $500,000 COVID-19 EIDL on the books, but since the business is closed, there’s no way to make payments on that loan. 

The business owner consults with their attorney and realizes that the option of filing two bankruptcies, one for the business and one for the business owner’s personal asset protection, are not viable options, especially on the personal side.

What is the business owner to do in this situation? When calling the SBA, the administration’s response is that the loan must be repaid, one way or another, including assignment to the United States Treasury for collection action by the IRS. 

The loan includes a personal guarantee provision, therefore the business owner is on the hook for full liability to make good on the defaulted loan. But how to repay the loan when the business is closed and has no revenue? How to protect the business owner when personal bankruptcy is not an option?

This is a description of an actual client scenario we’re currently working on here at Aurora Consulting. Through our expansive interview process, combined with the experience of our resident retired Loan Officer, Trevor, we examined the unique circumstances of this business and the business owner to arrive at a solution.  

The SBA provided zero assistance in arriving at the solution, other than a recent change to their collections practices which offered an opportunity to complete our recommended strategy.

We are inundated with questions from Small Business Owners on a weekly basis about the various aspects of the COVID-19 EIDL program. Often, those folks have discovered information from other sources. But too often that information is incorrect or incomplete based on a different business’ different needs. 

As mentioned above, each unique business has a personality all its own, and solutions that work for one business may not work for another.  

The day before Thanksgiving we fielded this question from a comment (note: we’ve not edited the comment below to correct any typos or grammar) on one of our YouTube videos: 

If the SBA did really care and didn’t wanted (sic) us to fail, the least they could do, is wipe all the acrued (sic) interest, my payments are $425 per month and my acrued interest is about $5,000 right now, so basically I’m only doing payments just to cover interest over interest and nothing is going to capital. I tried to do payments for about 5 months, but i gave up…

This comment is an excellent example of the lack of clear information about the loan program available from the SBA directly and, indirectly from multiple internet sources.

First, the SBA is a federal agency and, in the case of the COVID-19 EIDL, they’re a direct LENDER. There’s no “emotion” built into the program to “care” because the SBA is tasked by the United States Congress to first lend the money and secondly, to collect the debt through regular monthly repayments of the loans.

Next, “wipe” the interest is not something the SBA is permitted to do under legislation passed by Congress. The agency has provided deferments of payments for up to 30 months, but the interest still accrues on the loan because it’s a LOAN. It was not a gift or a grant. The American taxpayers funded these loans and SBA is required to protect the taxpayers’ interests to collect repayments, including interest.

Finally, the most challenging part of this person’s comment is the lack of understanding that they are paying some principal on the loan. During the deferment period, no payments are required, but if a borrower makes a payment, the total of that payment goes to the interest only.  Once the 30-month deferment period ends, regular amortization of the loan commences with each monthly payment going towards principal and interest.

We know from our own experiences of questioning SBA that their communications are not always clear on this aspect. And there’s nothing to be discovered on the SBA website that explains this aspect.   Likewise, SBA is not fully disclosing that the deferred interest will be due as a “lump sum” balloon payment at the end of the loan term of 30 years.

In 2021, we created an expert comprehensive guidebook, the “Post-Closing Blueprint.”  The purpose of this guide is to answer all the questions we could anticipate that Small Business Owners would have about the SBA’s COVID-19 EIDL program. 

Whether a business is challenged to repay the loan or has a simple question about how the repayment of principal and interest works, we anticipated these questions and answered them in our guidebook.

We did this for two reasons. First, because we saw how much confusion already existed around the program due to SBA’s poor communications. We knew that Small Business Owners would have these 30-year loans and their questions would come up from time to time.

The second reason we created the guidebook is because our availability would eventually become limited to answer questions like the ones posed above by the owner of the closed business with the defaulting EIDL and from the comment on our YouTube video. 

Currently, we continue to update our YouTube videos with relevant and timely information. We also respond to comments, offer one-hour paid consultations, and offer in-depth consulting. But we won’t be offering these services forever. 

Like so many other Small Businesses, we’ve found that it’s time for us to move on from the COVID-19 EIDL program and find other sources of revenue for our Small Businesses. We have so much valuable information to share with businesses that borrowed money from the SBA’s EIDL program.

Based on our success with obtaining about $70 Million in approved loans for our Clients and our estimate of assisting other small businesses with free advice with another $30 Million in loans, we’ve spoken to thousands of small business owners and hundreds of SBA agents. We worked on hundreds of EIDL files, and we have continued to interact with the SBA and small business owners in various capacities since the program ended in May 2022.

But we won’t be available as an expert resource for more than another year or two.  And these loans are 30-year loans. We’ve answered your questions with expert guidance in our “Post-Closing Blueprint” and we encourage you to purchase the guide as your “on the shelf” handy reference for any time in the future when you might need a simple question answered or when you have a complicated situation arise and you need our guidance before you contact the SBA.

By example, we answered the comment about the accrued/deferred interest and principal and interest payments with an entire CHAPTER in the guidebook.

We anticipated and covered every possible situation and question that could arise.  If you are the kind of small business owner who takes your responsibility under the COVID-19 EIDL program seriously, and you want to properly honor the restrictions and repayment obligations of the loan, our guide is your single-source resource. 

We continue to provide revisions and updates to the guide as SBA develops new responses and procedures. And we’re providing those updates FREE of charge to anyone who purchases the guidebook through December of 2024.

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