Trevor did a YouTube video about the SBA’s Hardship Accommodation Program (HAP) for the SBA COVID-19 EIDL program. The HAP provides a Borrower with substantially reduced payments in six-month increments, up to a total of two years.
In the video, Trevor mentions how we at Aurora Consulting are carefully monitoring the SBA to learn how it will treat EIDLs that were previously delinquent in payments but are now showing as “current” in the MySBA profile, even though the Borrower never made a lump sum payment to bring the loan current.
No, the SBA approved the HAP reduced payments program without requiring that the loan be brought fully current.
Clearly, there’s something to be concerned about here. Trevor’s 30+ years of experience in the lending arena inform his serious concern about small businesses with previously delinquent EIDLs and what the SBA is going to do about it.
-
- Will they send these loans to a private collection agency? The SBA recently stated in a letter to Congress that it’s seriously considering this strategy.
-
- Will SBA offer Borrowers an accelerated repayment option to help bring the loan current? Trevor indicates this is what a Lender calls “remediation program” that helps delinquent Borrowers come current with their debts without suffering the dire consequences of overall default and collection activity.
A smart viewer of Trevor’s video responded. It was clear Trevor’s message was somewhat obscured about his viewpoint on the default status of a previously delinquent loan. Maybe because he was outside and it was about to thunder down a serious storm! Obscured by clouds, indeed!
Trevor recorded a new video to discuss this topic better. He’ll discuss this again on our YouTube LIVE Q&A on Wednesday, September 4th, 2024, at 8PM Eastern/5PM Pacific. Here is Trevor’s response to the awesome small business owner email:
Thank you for your awesome insight from our YouTube video. I should have been more specific. I realize that now, and YOU helped me to understand that!
When I mention the “default” status, I mean that I believe that internally at SBA they still consider ALL these loans with delinquent payments to be part of what we call in the lending industry “non-performing.”
By definition, a lender categorizes any loan as “non-performing” the moment there is a single late payment. In other words the lender approaches how it manages loans in this category in a different manner than “performing” loans with no late payments.
Therefore, even though a loan like yours might display a status on the MySBA portal as “Disbursed Current” my opinion, based on various statements SBA has made in the past 12 months, is that SBA dropped your loan–and others like it–into the “non-performing” category.
Lenders, including the SBA in this instance, don’t like to carry non-performing loans on their books. It’s too much trouble for the lender: too costly to manage the repayment process in dollars and time. And there is a high probability that a previously delinquent loan, though now “current” might again fall into delinquency in the future. The statistics support such an analysis. Therefore, Lenders often make the decision to discard non-performing loans by selling them off to private collection agencies.
We’ve already seen that SBA did this with 860,000 loans at the end of last year and beginning of this year when they shipped off those loans (not sure if yours was one of them) to US Treasury “Offset Program” department to commence collection activity. US Treasury automatically added a 30% penalty to the loan balance, demanded immediate repayment of the full balance (plus penalty), garnished government payments to EIDL Borrowers, and offered onerous repayment terms.
I believe that US Treasury was overwhelmed with the sheer volume of loans and communications from desperate business owners. I believe SBA took over management of the Offset Program back at SBA due to governmental protest from US Treasury. (SBA commented to various external sources how they were taking over the Offset Program to collect payments)
Thus, it is a logical conclusion for me, as a 30-year veteran of the mortgage lending industry with a specialty in government loans, and now 4 and half years as an SBA EIDL expert, that SBA still considers ANY loan that was delinquent to be “non-performing” and thus subject to further collection action at SBA’s discretion.
And THEN, there is the additional issue of the original delinquency!
If a COVID-19 EIDL was delinquent and is now in a specialized program of reduced payments (Hardship Accommodation Program or HAP), what about the dollar value of those previously delinquent payments?
- When does the loan come current?
- Can the Borrower eventually pony up the cash to bring a loan current? (In our conversations with over 100 of our Clients, the answer is mostly “No!”)
A reduced payment program not only fails to bring the principal loan balance current, but also adds additional accrued interest to the back-end of the loan in the form of a “balloon payment.” (We discuss this in length in our SBA COVID-19 EIDL Guidebook, along with personal guarantees and SBA liens against business assets)
Please tune in to our Live Q&A on Wednesday September 4th at 8pm Eastern/5pm Pacific and THANK YOU again for your valuable feedback!
Subject – Re: EIDL accommodation delinquency short
(Redacted email)
On Aug 15, 2024, at 9:18 AM, Nancy wrote:
Hi!
Your short had a question about how delinquency is treated in hardship accommodations. I just recently did one under 200k. First, it shows up with the new payment amount and as a delinquency. Quite disconcerting if you don’t know it takes 48 hours for the system to bring you current! Then it updates to current after 2 days. The SBA agents will verify on the phone that this is how it works.
Best,
