Forced to Take the COVID-19 EIDL


We received an inquiry from a Small Business Owner with a COVID-19 EIDL. Her (unedited) inquiry reads as follows: 

“I was forced when I feel under duress during Covid to accept a loan from the SBA that I did not want to be forced into simply because the workers I had were independent contractors versus employees. The nature of my business is most of the instructors will not be employees. They are independent contractors so we are in a bind. If I did not accept the loan, my business would have immediately collapsed, and I would have lost all of my students and the instructors as well. Do you offer assistance with this to avoid bankruptcy.”

We’re passionate in our commitment to supporting Small Business. That’s why we give away a lot of free expert information and advice. It’s why we offer a one-hour paid consultation call where you can speak directly with Trevor, pick his brain, gain some clarity, and, sometimes, he’ll call the SBA with you on the line to help with challenging situations or questions.

The business owner quoted above never followed up with us to book the one-hour paid consultation call. It’s a shame because we would have done two things to help. 

First, we would’ve explained the process of remediation on the repayment of the COVID-19 EIDL, with a focus on avoiding default and bankruptcy. Second, as we’ve seen in many of our calls, we would have provided some relief and in fact, other business owners have often said at the end of the call, “I feel so much calmer now.”

Trevor was a Mortgage Banker for 30 years. He learned a long time ago how to explain complicated financial procedural concepts to Clients, and how to remove emotion from the process. But let’s address something in the quoted message above about being “forced into” accepting the SBA’s COVID-19 EIDL.

First and foremost, no one forced anyone to take those funds. The application process was 100% voluntary based on need. If you needed the support immediately or thought you might need it soon, the funds were there for you to request.

Next, it appears the business was not eligible for the Paycheck Protection Program (PPP) loan(s) due to the nature of the employment relationship between the business and its workforce. 

The business owner states that the instructors for the business are not employees, they are independent contractors. She states that “…the nature of my business is most of the instructors will not be employees.”

Let’s review and discuss these concepts and challenges.

The SBA’s PPP loan became available through approved Lenders as a result of legislation included by Congress in the COVID CARES Act. The PPP provided a low-interest rate of 1%. If the PPP loan was issued prior to June 5, 2020, it would have a two-year repayment term. After June 5, 2020, the repayment term is five years.

The program provided for 100% Forgiveness of the loan, essentially making this a “grant” of sorts. The purpose of the program was to keep people paid as employees, not needing to request Unemployment benefits. 

For example, if your business was required to close to the public or to staff due to state-mandated pandemic lockdowns, the Congress of the United States wanted your business to continue to pay your employees their salaries as if the business was open.

The loan solved two problems. 

First, avoiding the government process of Unemployment benefits both in terms of cost to the government and access to receive those benefits by the unemployed workers. In other words, the employee would still get their regular paycheck, and not have to go through the worry and wait for an approval of the unemployment benefits.

Second, the business could maintain its staffing so that, once lockdowns were lifted, the business wouldn’t have to go out to find new employees and replace departed employees.

While we worked to help our clients obtain approvals for the SBA’s COVID-19 EIDL program as paid consultants/preparers, we provided a courtesy service to many of those clients to process their PPP loan applications. We were not permitted by law to charge a fee for assisting. We processed several dozen PPP loans.

One issue that kept coming up during our review of the eligibility of a client’s PPP application was this misunderstanding of employee versus independent contractor. When we asked the question, “How many F/T employees does the business employ?” we would get an answer, for example, “9 employees, not including me (the business owner).” 

When we reviewed the business tax returns, under the line for “Salaries/Wages” we’d often see that line item blank. That means no W2 employees. That means the “9 employees” are not actually employees; they’re independent contractors. 

And, sure enough, on the line of the tax return for “Contract labor” there would be a dollar amount entered.

We’d have to call the business owner to explain the difference of employment classification and the reason why the business was not eligible for the PPP loan. We explained how the independent contractors working for the business would need to apply for their own, individual PPP loans because they were essentially small businesses.

Many of the business owners pushed back on our assertions of the ineligibility for the PPP loan. “But they work for me” was a common response. Okay, well, by itself, that’s a violation of IRS and Department of Labor employee classification rules. Let’s set that aside for now. 

In that particular moment, we attempted to request PPP loan assistance, and it didn’t matter what the business owner thought about their relationship to the people who worked for the business. They were not employees, thus, no PPP loan.

The proceeds of the SBA’s COVID-19 EIDL could be used to pay employees. The program’s purpose is to provide the business with money to make up for revenue lost due to a disaster to be used to pay ordinary operating expenses.

This raises the question, “Can you use the COVID-19 EIDL funds to pay independent contractors working for the business?”  

If the funds were used to pay those contractors while the business was on lockdown, without the contractors actually doing any work, then the answer is most likely, “No, you cannot use the funds to pay independent contractors.”  

As previously mentioned, those independent contractors would have to apply for their own, individual PPP loans.

On the other hand, if the independent contractors were performing actual work services for the business at the time of the lockdown…and after…then, yes, the business could use the funds to pay those contractors as long as it matched previous operational standards of work and payment. 

Meaning, if your independent contractor provided, let’s say, 38 hours of billable work hours to your business before the pandemic, and continued to provide similar services during the pandemic, then, yes, you could pay those contractors as an “ordinary operating expense.”

As we’ve discussed so far, many small business owners had challenges with this misclassification of their working staff.  And those challenges became a horror-movie-level monster when these businesses were confronted with their need for the PPP loans, and the use of the EIDL funds.

We don’t know where the concept of misclassification of employees came about. 

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However, we know it’s been happening for quite some time. And we don’t know how it came to be that so many small businesses jumped on the “independent contractor” bandwagon. 

What we do know is that too many small businesses treat their actual employees like independent contractors. From the employer side, the business saves on contributions to payroll taxes, disability insurance, unemployment insurance, and more. 

The business avoids uncomfortable situations revolving around the issues of employee benefits. And most of the time, the business treats the independent contractor like an employee with work rules, scheduling requirements, and more. 

The true definition of an independent contractor is that a person sets their own work schedules and standards. The small business can only provide basic guidance on the task to be achieved by the contractor. The independent contractor determines if, when, and how they will accomplish the result requested by the business.

Don’t believe us? You can read the classification rules on the IRS website for more information. 

But these misclassification issues are legendary around the United States. Employees are paid as independent contractors but are required to work under employment rules and standards.

For their part, we’ve seen how the “employee” who’s really an independent contractor thinks they’re doing great because they get more money in their paycheck. They’re not aware of two important features of their “misclassified” employment status.

First, they’re not employees. Their employer literally cannot tell them what to do, when to do it, and so much more. Secondly, the misclassified employee is responsible for their own payroll taxes, including paying a “self-employment” tax on their annual tax return. Those additional taxes they pay actually make their overall annual take-home pay LESS than if they were properly paid as a W2 employee.

Let’s return to the email from the business owner who was “forced” to take the EIDL.

While we never spoke with her because she didn’t book the paid consultation call, we’ll hazard the guess that she’s guilty of the misclassification of her staff like so many other business owners.  We’re confident because of her annoyance at being blocked from the PPP loan due to the employment classification of “independent contractors.” 

We make this fair assessment because of our previous experience during the pandemic of speaking to thousands of small business owners, and how so many of them misclassified their employees.

Somewhere along the way, this small business owner decided to pay her employees as independent contractors, probably as a result of a conversation with her tax professional or bookkeeper so that she could lower her payroll expenses and improve bottom-line cash flow.  We’ve seen this too often.

That strategic decision she made is the reason she was “forced into” the COVID-19 Economic Injury Disaster Loan, not for any other reason, but a bad decision she made to operate her business.

But is it a bad thing to have received the COVID-19 EIDL? We don’t think so.

The program for the COVID-19 pandemic was a modified version of the SBA’s traditional natural disaster loan; a program created in 1953 to help small businesses recover from a natural disaster. The loan program helps to repair physical damage from the disaster and recoup lost revenue as a result of the disaster. 

The loans are low cost with terms as long as 30 years. That makes these loans very attractive from an affordability perspective. 

We know from our experience of speaking to so many business owners during the pandemic, that many business owners had never taken on any debt for their businesses. Borrowing money to manage their business was a new, and often, unwelcomed concept for them. 

We argue that had business owners, like the person in this example cited above, made better quality, strategic decisions for their business, they would have fared better in so many ways, not only by having access to the PPP loan.

We also encountered so many businesses with tax returns that zapped all their revenue with mountains of expenses, all with a view towards lowering net income and ultimately paying a lower income tax bill. 

However, that lower net income could harm the business when trying to obtain financing because lenders often determine the maximum loan amount based on the net income.

We digress.  Again, was it a “bad thing” to have taken a COVID-19 EIDL? In our humble, professional opinion, NO, not at all.

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The program has some basic features that make this financing package very attractive indeed.

First, is the low-interest rate. As a for-profit business during the pandemic, the interest rate is 3.75%. For non-profits, the rate is 2.75%. Even at the time of the pandemic, those rates were far below market rates for business financing. Even more so today with the recent increases in interest rates.

Next, the loan is a fixed-rate loan. The rate…and the payment…never change!  This is unusual in commercial financing because many business loans feature a variable rate feature.

The SBA’s COVID-19 EIDL is a 30-year loan.  With the combination of low-interest rates and extremely long-term (most commercial loans are substantially lesser terms of repayment period), the money is, as one of our colleagues and financial services professionals recently said, “free money!”

But wait, there’s more.

There’s no prepayment penalty. If a business owner truly despises the idea of carrying debt on the books, they can create an aggressive repayment plan to pay off the 30-year loan earlier with no penalty. Again, unusual! 

Many commercial lenders charge a penalty for paying off their loans early, and those penalties can be hefty.

Because the loan is a debt for the business, in most all cases, the interest is going to be tax deductible against business income. That lowers the overall income tax bill every year. NOTE: confirm with your tax professional if this is true for your business. 

Therefore, if do the math: 

  • Low-interest rate
  • Long-term repayment period
  • Tax deductible interest

It probably does work out to be, quite literally, FREE money

We encourage you to consider this before you rail against the fact that your business was “forced into” taking on this burden of debt.  In fact, we don’t think it’s a burden at all for other reasons besides the litany of amazingness we’ve outlined so far.

If your business faces challenges making the monthly payments due to economic conditions, you can request a hardship accommodation to lower the monthly payment by as much as 90% (to a minimum of $25.00) for a six-month period! This is an incredible benefit of the program. 

We don’t know of commercial lenders offering anything even close to this feature of the SBA EIDL. And, yes, you can request an extension of the six-month period.  

Once cashflow is back on its feet, if you experience difficulties again in the future, at any time during the 30-year term of the loan, you can request another hardship accommodation!

There is one other “intangible” benefit that so many people avoid thinking about or talking about.  

During the pandemic, whether your business was on lockdown restrictions, or experiencing pain due the depleted economy, where folks may not have been buying your goods or services, or you couldn’t access important components in the supply chain to create your product or service, you probably experienced a severe downturn in revenue. 

We know this isn’t true for everyone, but it is true for many small businesses. So much so that, since it was the only true business-saving benefit at the time, the SBA’s COVID-19 EIDL may very well have saved your business!  

If no other feature of this program has value to you, certainly this single intangible benefit must. We encourage you to take the time to do the math on what you lost compared to how the funds saved your business.

At the time of this writing, we’re encountering hundreds of small business owners having difficulty with the SBA’s COVID-19 EIDL. From challenges in their own business to find revenue, to challenges of making payments on the loan, and other considerations as well. 

We see a lot of complaints about this program. And we also see a lot of folks trying to gain information on how to avoid repaying the loan. As a result, in place of embracing the good things about the program, we see business owners, such as the person who inspired this blog, complaining about how they were “forced into” taking the loan, or complaining about how student loans are being forgiven but not these loans, and on and on.

Focus on the positive, as they say. Use those features as a basis to feel more encouraged about how the program helped you, use those features to help you cease complaining, and instead, find positive ways to focus on the problems at hand that are causing you distress in your business.

Once you do, you might find that your business improves because you’re paying attention to the core issues causing problems and striving to find solutions to those problems. This leads to thriving in your business instead of simply “surviving.”

If you want expert guidance on your COVID-19 EIDL, our Post-Closing Blueprint is the solution you need!  We cover every aspect of this program from your responsibilities to restrictions on your business to problem-solving advice, even a chapter dedicated to “How to Speak to the SBA!

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EIDL Q&A 101

Questions and Answers about EIDL

Small Business Owners have so many questions about the COVID-19 EIDL program such as: 

  • “Are EIDL loans forgiven if a business closes?” 
  • “What happens if I can’t pay back my EIDL loan?”
  • “Are business owners personally liable for EIDL loans?”  

Many business owners reach out to us through our website and our YouTube channel seeking answers to these questions because of our expertise with the EIDL program.

To find the answers to these and so many other questions, the normal course of action would be to visit the SBA website or to call the SBA to ask these questions. 

However, in our opinion, SBA has a terrible reputation in providing clarity about procedures and programs. In our experience working with SBA since 2018, the administration’s communications are simply terrible.

Another aspect to these questions is that each business has a unique “personality.” Answers to questions for any given “unique” business cannot be simple “one size fits all” responses. 

EIDL Q&A 101 blog Nov 27 2023

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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The Problem with Crowdsourced Knowledge

We believe crowdsourced knowledge can be useful for two reasons ONLY.

    1. Ascertaining general knowledge on a topic with which you’re unfamiliar.  An example is changing a tire on a car.  If you’ve never changed a tire on a car and you either ignore the instruction manual in the glove compartment or don’t have one (you can download it online in most cases), then crowd-sourcing other people’s experiences with changing tires can be useful to the extent that you’ll learn special tips or come to understand the general concepts: jack, bolts, tire pressure, etc.
    2. Obtaining referrals to experts.  After learning of other people’s experiences with changing a tire, you may decide there’s too much at stake—such as the car falling off the jack. For this reason, you may decide to not undertake the job yourself.  You seek out advice from expert providers of tire-changing services.

Both of these concepts are valuable, but should only be used as a starting point if you have absolutely no knowledge or experience of the task or information you’re researching.  Or, if the task is complicated and requires true expert knowledge of the subtleties and nuance of the information.

The starting point of using crowdsourced knowledge can become a “fork in the road” to move forward with the activity you’ve been researching.

You can choose to take the knowledge and seek out an instruction manual for the car you wish to change the tire on.  You can then do the work yourself, guided by the instructions created by an expert—in our example, the vehicle manufacturer.

Or you can choose to conduct additional research on the experts you’ve seen recommended:

    1. You might look up each expert’s online reviews through other platforms.
    2. You might seek out the expert’s professional credentials through government regulatory authorities or check out the professional biography of the expert.
    3. You might ask your trusted circle of friends, family and colleagues if they have used any of the recommended experts to obtain further information and enhance your research.

Using these additional activities, the crowdsourced research can lead you to find a high-quality expert in the area you’re researching.

But there’s a small alleyway off the side of the road where the “fork” in the road lies. We call that “shortcut alley” because too many people don’t want to take on the extra work necessary to find the best results for the information they seek.  Instead, they want the shortest way to solve their problem. 

They’ll take the crowdsourced information they’ve obtained at face value as the be-all and end-all of expertise.

They fail to use the crowdsourced knowledge solely as a starting point, and then do the extra work necessary to gather data and inform the ultimate decision with comprehensive research.

In our opinion, this is a disaster in the making more often than not.  Yes, the crowdsourced information can often be very useful, such as learning to add a dollop of butter to your oatmeal at breakfast.  But when it comes to more complicated topics, the crowdsourced expertise is anything but expert.

We learned this through the pandemic as we sought to provide free expert information to small business owners trying to navigate the United States Small Business Administration’s COVID-19 disaster loan program.  Often, we’d encounter business owners telling us that our information was wrong. They would challenge us with the information they’d crowdsourced.  Our pushback was to say that the experience of one person was unique to that person and that the loan program was too complicated to rely on the one experience of one business owner with their particular scenario.

We continue to encounter these crowdsourced-fake experts as many small businesses fail or continue to face challenges repaying these COVID-19 disaster loans.  The crowdsourced-fake experts would have people believe they can simply walk away from the loan, to either ignore the consequences or, worse, to go about their days thinking, “The government will never come after me.”

Because we rail against this terrible advice, we’re sometimes accused of being fear-mongers so we can sell our products and services.

While it’s true that we’re a small business and we have products to sell and services for hire to earn a living, we also give away volumes of free expert advice through our YouTube videos, free downloadable guides, and responses to video comments. Our expertise is derived from our respective careers in the financial services field, from the work we did during the pandemic, and from the ongoing work we do to assist small business owners with their interactions with the SBA post-pandemic.

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In today’s New York Times, an article about a basketball player’s dream of owning a home in Canada provides probably the most succinct insight into the reasons why simply “crowdsourcing” your expert knowledge is a failed concept if you don’t do the additional work. This is a tale of the worst aspects of bad crowdsourced experience, and the shortcut mentality that led to a financial disaster.

In the article, the basketball player must vacate the house he purchased because nefarious characters continually show up at the house looking for the previous occupant.  The previous occupant is a person named Aiden Pleterski, a self-styled “crypto king” who declared bankruptcy in 2022, while owing 26.8 million Canadian dollars to more than 150 investment clients.

He’s under investigation for the massive financial fraud involving monies that he is alleged to have stolen from investors.

Pleterski had no professional or educational experience or expertise. In this quote from the article, you can see where Pleterski learned how to become a financial whiz: “Mr. Pleterski said he first became interested in cryptocurrency after using it to make purchases for video games and began trading it when he was still in high school. He started out with money from his family and his earnings as a part-time baseball umpire. His knowledge of trading and financial markets, he said, came from “YouTube videos, Google, quick Google searches.”

“The business, Mr. Pleterski said, operated through his personal bank accounts until December 2021, when he set up his company at the suggestion of a former landlord. His only record-keeping, he said, consisted of his texts and WhatsApp messages with customers. While Mr. Pleterski did create spreadsheets for a handful of customers who demanded them, he acknowledged that the investment return they showed was just “a general ballpark figure” he came up with after looking at his bank accounts.”

We understand that the nuances of some activities, such as interacting with a complicated program such as the SBA’s COVID-19 loan program can make the search for expert knowledge more challenging.  But we’ve too often heard from people—as recently as yesterday, in fact—how they wish they’d found us sooner.

The small business owners we spoke to yesterday are not “shortcut” people by any stretch of the imagination. They had a question during the pandemic about how to properly use the funds their business received from the COVID-19 EIDL program. They sought out expert advice and received a referral to an expert.  But that professional ultimately gave them bad advice, so bad in fact, their business might be in legal jeopardy should the US Government investigate the use of the funds and then discover the improper utilization.

Based on our conversation, we know these business owners were so desperate to get an answer to their question, that they failed to go to the next step of taking their crowdsourced referral to investigate further the background of the expert. They did not read online reviews of that expert’s professional services or acumen.  They did not research the expert’s professional credentials or professional biography.  They simply accepted the crowdsourced recommendation, contacted the expert, and followed his bad advice.

Too often the desperation to resolve a problem quickly can lead to taking shortcuts.

When it comes to your COVID-19 EIDL, there are no shortcuts. The program is complicated and there are substantial real consequences to making bad choices and bad decisions. Whether you need to make a simple change to your business or if you’re facing challenges in repaying the loan, take the time to thoroughly research and locate the expertise you need to make the best decisions possible.

If you don’t invest the time to thoroughly research, if you take a “shortcut” and accept the crowdsourced knowledge as the ultimate expertise, you may discover the car falling on top of you as you try to change the tire with the badly sourced fake expert advice.  

And it’s going to hurt. A lot.

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17 Q&As from Our YouTube Channel

From the very beginning of the pandemic, Linda Rey and I set out to provide thoughtful, truthful, and accurate information to struggling Small Business Owners.  Literally, on March 18, 2020, we discussed how scammers, sharks, bad bloggers, and click-baiters, would emerge from the slimy depths of the internet to give bad information, poor advice, and misleading directions.

We’ve been answering questions ever since. During the pandemic, while we processed hundreds of EIDL applications for a total of $70M in approved funding, we answered questions on free phone calls, email inquiries, and our live YouTube broadcasts.

We’re passionate about Small Business and we want to do our small part to demonstrate our commitment to their success. Here’s a sampling of recent comments and questions we’ve received in response to a variety of our YouTube videos.

Q: The only choice, it seems, is to bk the loan if you truly can’t pay. I’d say ignoring sounds like a bad idea. Many of these youtubers have people thinking forgiveness is coming. One was cheering because he heard people saying loans were being charged off. He has no idea that’s not a good thing, yet he pumped that nonsense.

Our Response:

The Federal government has a long memory.” That’s why ignoring your COVID-19 EIDL is a BAD idea!

Even if you’re making your payments, you might be inadvertently ignoring simple basics to comply with the terms of the Loan Agreement you signed. Things like submitting annual financial statements or notifying SBA of changes to your business. Failing to comply is literally considered a DEFAULT by SBA in the Loan Agreement!!!!

Our Post-Closing EIDL Blueprint has all the info you need to remain compliant and NOT IGNORE the COVID-19 EIDL!

As for filing bankruptcy: this is another one of those topics tossed around carelessly by the pseudo-experts. While filing bankruptcy could potentially discharge the debt, that means you may have to ALSO file a personal bankruptcy. AND THAT MEANS starting all over with your credit. Or, even worse, having to include your other personal assets and liabilities in your personal BK just because you listened to some fool pretending to give expert advice!

There are other ways to manage a challenge with payments. Our Post-Closing EIDL Blueprint discusses remediation in depth.

Q: I’m closing my small business down due to health reasons. There’s no personal guarantee. Am I personally affected?
 

Our Response:

Trevor and I are truly sorry to hear about your having to close your business! We have seen so many small business owners suffering during these uncertain economic times.
 
You should be aware that, even absent a personal guarantee, according to the SBA’s Loan Authorization and Agreement (LAA), you may still have a personal liability for a defaulted loan. Meaning, SBA could potentially come after you for repayment of the debt. This is one of those murky areas where SBA’s poor communications fails to provide clarity.

If a business has a COVID-19 EIDL and is closing down, you must contact SBA, whether or not there’s a personal guarantee. SBA has a process for every situation and challenge, and closing a business is no different.

Q: You need to go back and research personal property. It clear states that you guaranteed the loan . With your personal assets. So that’s what my attorney’s said and my CPA if the loan is over 200 thousand

Our Response: 

1. We created our Post-Closing Blueprint to delve deeper into complicated concepts like this.  If you purchase the guide today, you will receive free updates through December 2024. We’re updating the guide occasionally due to the changing landscape of the COVID-19 EIDL requirements.  In our recent experience, SBA is literally changing the rules on the LAA, and, we know that internally they are still working out procedures for the new challenges facing the COVID-19 EIDL Borrowers, including defaulting loans, hardship accommodations, and the concepts of personal guarantee and personal liability.

2. SBA’s communications for this complicated topic are terrible. As with so much about the SBA program, it is nearly impossible to get clear guidance on a challenge or an answer to a question.  Your Attorney and your CPA are reading this one way, and I’m reading it in a different way because of my background as a Loan Officer.

The other element to your comments is that it is difficult to properly explain these complicated concepts in our videos. We do our best, but our Post-Closing Blueprint provides a more comprehensive discussion on these topics.

Our intention with our guide is to provide background to help the Small Business Owner come to an understanding of complicated SBA concepts instead of solely relying on a “pat” answer to a complicated question posed to an attorney or CPA, which is, IMHO, what happened in this case.

Our guide gives you all the information and tools you need to manage your COVID-19 EIDL. We made our best effort to untangle the complications of SBA’s confusing communications.

Q: ⁠what if you have less than 20% ownership but also have a personal guarantee w loan over 200,000?

Our Response: 

We define and explain the personal guarantee in great depth in our expert guidebook “Post-Closing Blueprint” but a short answer is this: personal guarantee means the guarantor(s) (business owner(s) with 20% or greater ownership interest) will take over the responsibility to repay the loan in the event the business entity cannot make payments.  The assets of the business owners are not considered collateral for the purpose of the EIDL, but those personal assets can be seized in legal proceedings that result in a judgment.

Click to Watch Video Where we Answer This Question
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Click to Watch Video Where we Answer This Question

Q: Thank you for your response. However, I do know of a loan over $200,000 with (4) personal guarantees. None of the members personally own more than 20% but collectively own over 51% of the company. Each name is and was included in the loan and it was approved. Was this a mistake to have the loan issued in the first place? Are the members liable as a collection even though they don’t personally own more than 20%. Thanks Again guys love your videos.

Our Response: 

I often saw where an SBA Loan Officer would request a “list” of all owners with less than 20% ownership and require that all ownership percentages total out to 100%.  But the “list” did not require SSNs or similar personal information, only a full name and percentage of ownership.  The fact that a person with <20% has their name on a “list” with an EIDL application does not mean they are on the loan.

If they were required to sign the EIDL LAA, that’s a whole other story, and likely the application was prepared incorrectly.  If so, SBA probably didn’t question it as so many of those early applications went through an automated process.

Q: Would the same apply to a sole prop business?

Our Response:

It’s not unusual for Small Business Owners with COVID-19 EIDLs to express confusion and concern about various requirements and restrictions imposed by this SBA program.

That’s why we created our comprehensive expert guidebook “Post-Closing Blueprint” as your single source “go-to” reference guide before you interact with the SBA.  We urge Small Business Owners to purchase the guide now because the EIDL is a 30-year loan and many questions and issues will come up.

If a Sole Proprietor has the equipment they use for the business enterprise, then the equipment can be considered collateral.

Click to Watch Video Where we Answer This Question

Other “intangible” assets such as Accounts Receivables, payments due on contracts, etc., are considered collateral. Our guidebook delves into the definition of collateral and business assets in detail.

Click to Watch Video Where we Answer This Question

Q: Any chance they may extend the 10% hardship payment longer than 1 year?

Our Response:

The SBA’s hardship accommodation is actually six months, not one year.  And, as per the SBA’s comments on their website, at their discretion, SBA may extend a hardship accommodation an additional six months.

In fact, the EIDL program generally allows for SBA to provide multiple hardship accommodations throughout the life of the 30-year loan!

As you may know from watching our YouTube videos, we only focus on facts, and we tend to demur from pure speculation. We don’t want to disappoint, that’s why we don’t speculate and why we prefer to focus on facts.

That’s why we stridently urge Small Business Owners to aggressively communicate with their U.S. Senators and Congresspeople to implore the federal government to both reauthorize the SBA and to enhance remediation for Small Business Owners with the COVID-19 EIDLs.

Congress controls the process!  Let them know how you feel and about the help you need to continue your recovery from the pandemic!

Q: The issue…for me at least…the economy is still crap. And my business has not recovered 100% so my income has declined and cost of living has increased. I really fear I will have to BK at some point.

Our Response:

We’re always disappointed to hear how Small Business Owners continue to struggle in this post-pandemic era.

We believe the U.S. Congress can certainly do more to relieve the suffering by providing some guidance to SBA to either increase deferments for the COVID-19 EIDLs, or to lower the interest rate, or, heavens-to-Betsy, offer FORGIVENESS!!!!

In the meantime, with our experience over decades in business ourselves, through all kinds of economic “storms” including recessions and the global mortgage meltdown, maybe we can offer you some kind and positive advice?

First, Trevor, a retired Loan Officer and “student of economic history” believes the economy is doing much better than most folks believe!  Yes, he knows that’s an unusual take, but it’s based on actual economic metrics, and ignores all those confusing media messages (you know, “There’s a recession coming!” “No recession!” “Is it recession yet?” and blah-blah-blah).

Second, from our own experiences, we believe that, when the going gets tough, the tough get going by focusing on ONE THING: Marketing!  We have so often seen how small businesses suffer at the hands of their own failures to increase marketing efforts.  In our opinion, the best way to overcome most business challenges is to get out there and try to find more customers.  The only way to do that is to invest 85% of your time and effort (and money) on MARKETING.

We can personally attest to how our increased marketing efforts have helped us to build our new business initiative after the SBA’s COVID-19 program ended, effectively “putting us out of business” in May 2022.

Marketing works! We truly hope you’ll find a way to overcome the business challenges facing your small business and that filing for bankruptcy will only be a distant and unrealized concept!

Q: I feel its vital folks out there get a sense for what is really happened to small businesses and what heartache and hardship we were put through. I mean the sba can cancel the interest and allow businesses to pay back the loan at hardship accommodation mode for 5 years. This is going to take a long time for mom and pop places to recover from. And county level officials need to be proactive and hold urgency when small businesses get their licenses taken away. We cant wait for legislation for next year for this to help. We need help at real time! Both parties need to mature up.

Our Response:

SBA cannot cancel interest and is not currently allowing hardship accommodations for 5 years.

We discuss SBA’s hardship accommodation and other loan remediation policies, including providing strategies for Small Business Owners to negotiate and communicate with SBA in our comprehensive Post-Closing Blueprint guidebook.

We stridently urge businesses with the COVID-19 EIDL to purchase our guide as their “GO-TO” reference before interacting with the SBA.

Q: Does the SBA automatically put a lien on you assets if the loan amount is 50k ? If I am current would their be a lien on my property?

Our Response:

We answer this question in detail in our Post-Closing Blueprint.  We encourage business owners with a COVID-19 EIDL to purchase our guide as the “GO-TO” reference before interacting with SBA for any questions or concerns about the EIDL.

The short answer: SBA put a UCC lien against the business assets for a COVID-19 EIDL if the loan amount was greater than $25,000.00.

There is no lien against your personal assets.

The lien is there from the beginning of getting the loan; they don’t put additional liens later on.

Q: They accused me of fraud six ways from Sunday, they denied my loan by accusing me of fraud, isn’t that negligence and character defamation? They did the same to hundreds of legitimate SBOs, so I’m wondering why we’re not banding together and filing a class action…I was shocked at how focused they were on fraud, against all logic and common sense, and they refused to hear me out or entertain the idea that they were wrong. Maybe the reason they’re making such a big deal about the alleged d fraud is because they finally realized they were actually negligent AND defamed innocent people’s characters, but don’t want to get sued…?

Our Response:

Call SBA Disaster Customer Service at 1-833-853-5638. Explain briefly the history of your application, focusing on these four key elements:

ONE: You Signed the Loan Agreement for a COVID-19 EIDL (You should have this in front of you on the call with the SBA Disaster Loan number located in the upper left hand corner of the agreement)

TWO: You never received the funds
THREE: You were told your file was flagged for “fraudulent activity”
FOUR: You want to confirm that you do NOT have a COVID-19 EIDL loan with SBA that needs to be repaid.

The SBA representative will transfer to the servicing center if a loan was funded. You will need to repeat your story again, but your goal is to ensure you have NO DEBT for the COVID-19 EIDL program.

Please note that we offer a one-hour phone consultation where Trevor will call SBA with you on the line if you prefer to have our expert professional assistance. You can schedule the paid consultation call here.

BOOK A FULL HOUR   Need time to hammer some issues, concerns, questions or a crisis about EIDL, PPP Forgiveness, ERC, or any general business consulting question related to growing your business?.  

Q: ….so I get it…that’s why I continue to make monthly payments. Yet I wonder if defaults reach a serious level what in your opinion will Congress or the SBA attempt to do to prevent their defaults from snow balling well beyond any foreseeable limits? Obviously the US government isn’t benevolent unless you are a too big to jail bank but are the bureaucrats that heartless?

Our Response:

We literally have no idea how SBA and/or Congress will react to a high number of COVID-19 EIDL defaults. There’s no true precedent, except for maybe Hurricane Katrina where a portion of the SBA disaster loans were ultimately forgiven thanks to a strenuous campaign by political representatives from Louisiana.

Currently, the mood in the Senate, at least, led by Senator Joni Ernst, seems to be to demand that SBA aggressively enforce collections on ALL COVID-19 EIDLs.  There does not seem to be a mood to accommodate and support Small Business Owners, the so-called “backbone of the American economy.”

The best course of action we can recommend is this:
1: Begin a constant communications campaign with your United States Senators and your local Congressional representative.

2: Demand that Congress create a response to these defaulted loans and future defaulting loans to help business owners emerge as undamaged as possible, including forgiveness, loan remediation to include longer hardship accommodation periods (currently six months), and potentially reducing the interest rate on the COVID-19 EIDLs.

3: Demand that Congress reauthorize the SBA and EXPAND the SBA with funding and expanded Congressional guidance.

Q: I have an eidl loan that was $50,000. I am a sole prop, i do not have or own any business assets, did not put up any collaterall , i rent an apt, finance my car and basically have a dead seasonal service based self employment type ” business”. I cannot pay this loan back – what will happen?

Our Response:

We’re so very sorry to hear about your situation!  So many small businesses continue to suffer due to the economic ravages of the pandemic.

We know that SBA is wrangling internally with issues about defaulting COVID-19 EIDL loans. Their procedures are evolving frequently.

When all is said and done, even without collateral and without a personal guarantee, a defaulted federal debt is a serious problem. We address this issue in our comprehensive expert guide, the Post-Closing Blueprint.

We’re hoping you and other folks in your situation will rely on our guide as the primary reference source BEFORE you interact with the SBA to try to resolve the defaulted loan situation.

One word of caution: a lot of the “urban mythology” out there would have folks believing “the SBA is never coming after me and my little business” leading them to simply ignore the debt obligation.   We believe this is a tragically horrible strategy.  The federal government has a long memory and you don’t want to be on the receiving end of their collection efforts, ever.

Especially as several US Senators are urgently pressing the SBA to aggressively enforce collection on these debts, even those loans for less than $100,000!

Don’t ignore the debt; contact the SBA to work out a resolution. Use our guidebook to prepare you before you contact the SBA. We wish you all the very best in this terrible situation!

Q: a general question about ERC and worry about being scammed

Our Response:

In our experience, the IRS sends the refundable tax credit to THE BUSINESS, not to the ERC consultant. Hopefully, you did not give the consultant access to your bank account.  

The ERC consultant on our Referral Partners team gets paid by the Client AFTER the Client receives the IRS refund and the consultant has to trust the Client to pay the consultant fee.  

The IRS scam warning focuses on consultants who take fees upfront and/or who improperly process ERC requests, including with incorrect documentation or for ineligible businesses. Get our FREE ERC Guide.

We created a FREE ERC guide. Click on image to download.

Q: So what are my options if I’m not able to pay back my loan? I’m sure there are thousands of people out there that cannot pay these loans back

Our Response:

We’re sorry you’re experiencing difficulties with repayment of the COVID-19 EIDL.  So many Small Businesses suffered through the pandemic and subsequent economic difficulties.

We’re not sure what “…not able to pay back my loan” means, whether your business failed, or you’re still in business and cannot afford to make any payments at all, or if you need temporary assistance with a reduced payment until revenue improves.

We tried to anticipate all three of these situations and more in our Post-Closing Blueprint where we provide detailed guidance to answer questions like yours.  

We assembled our expert comprehensive guidebook based on our experience with SBA processing, our experience as financial services professionals, and over the past 9 months, speaking with Small Business Owners and the SBA to get the right answers to questions like these.

Our guidebook gives you strategic solutions including WHO and HOW to call at SBA, SBA forms you might need, TEMPLATES for submitting requests to SBA, and Step-By-Step instructions to help you resolve challenges with the SBA loan program.

Keep in mind that, while a business may be unable to pay these COVID-19 EIDLs, these are legal debts and SBA will require repayment in one way or another, either now or in the future through debt collection practices.  In other words, these loans are not simply a matter of “walking away.” Hope that helps!

Q: I am in the trucking business and with everything and the stimulus that I borrowed, it is going badly for me and I cannot pay the full monthly payment, if this economy does not improve, then they can do what they want with me and what I have been able to achieve so far

Our Response:

We are sorry to hear your business is still struggling.  The harsh realities of the pandemic combined with the following economic issues such as supply chain and inflation is certainly impacting millions of Small Business Owners.

SBA will allow you to pay a reduced payment of as little as 10% of the monthly payment (must be a minimum of $25.00) for a six-month period.  You can request this hardship accommodation on your MySBA portal.

If the issues are more urgent, then we recommend using our Post-Closing Blueprint to guide you on how to call the SBA, who to speak to, and the SBA’s forms and process.

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5 FAQs about the SBA EIDL Loan

square thumbnail to promote a live youtube show. Linda Rey and trevor are leaning on each other and the caption reads: EIDL UPDATE: COMMON SENSE or Chaos.

Click to download this free guide.
Click to download this free guide.

There are five sections in this post that address various issues people inquire about with us on an almost daily basis.

  1. Our Post-Closing EIDL Blueprint
  2. COVID-19 EIDLs are not Forgivable
  3. Fake Forgiveness Freaks
  4. IRS Form 982
  5. Our consulting services to assist COVID-19 EIDL Borrowers 

Our Post-Closing EIDL Blueprint is our comprehensive, expert guide that outlines all SBA EIDL obligations, restrictions and questions that may come up with the COVID-19 EIDL.

One of the FAQs we get on an almost daily basis is when a Borrower is having difficulties making payments. We address this in our Blueprint.

All the topics covered, in our Blueprint, can be found in the table of contents including “Make A Payment Toward Your EIDL.” You can then click through to “Hardship Accommodation.”

The navigation link takes you directly to the section on how to request lower payments.

COVID-19 EIDLs are not Forgivable

If you call SBA’s customer service number, as Trevor did this morning, the initial menu prompt states the loans are NOT Forgivable.

You can request a reduced payment by as much as 90% (see the section in our guide about “Hardship Accommodation”) for six months. It may be possible to request additional extensions (subject to SBA approval.)

A business owner cannot pause payments.

 

 

 

 

SBA’s position on difficulties repaying the COVID-19 EIDLs is this: They expect Borrowers to pay, no matter the circumstances. This includes the ever-so-drastic event of a business partner embezzling the disbursed funds, which happened to one of our clients.

You can learn more here about how we found out that our client’s “partner” was indicted today.

Fake Forgiveness Freaks

We know there is lots and lots of chatter on the internet and elsewhere about these loans being Forgivable, and apparently all kinds of misinformation from alleged “experts” on how to manipulate the SBA system to make the loan Forgivable.

These “fake experts” have folks chasing fantasies to get their loans Forgiven, including a new class of scammers offering to negotiate an “Offer In Compromise” with SBA–for a FEE of course.

SBA’s internal procedures are still evolving. That’s why we provide FREE UPDATES to our Post-Closing Blueprint through December 2024 so you have the latest and most accurate information about the program.

IRS Form 982

This form does not pertain to Forgiveness of an SBA COVID-19 EIDL. This form is used to reduce the tax liability when a person or business receives a “discharge” of indebtedness (such as settling a collection account for less than the full balance because the amount of settled reduction is considered taxable income disclosed on IRS Form 1099-C).

From the IRS website: “Form 982 is used to determine, under certain circumstances described in section 108, the amount of discharged indebtedness that can be excluded from gross income.“

Our latest information, directly from reputable sources at SBA, is this: If a COVID-19 EIDL defaults, SBA will attempt to recover the debt, but they will ultimately transfer the defaulted debt to the IRS for collection. IRS then can collect through liens, wage and benefits garnishments, and tax refund seizures.

Our Consulting Services

We offer consulting services to assist businesses in navigating a variety of questions and challenges with their COVID-19 EIDLs. We have been assisting with these services since September of last year.

If a U.S.-based business is in need of our services to assist with their COVID-19 EIDL, we will prepare and send a consulting proposal that outlines the objectives, scope of work, estimated time to complete, and cost.  

 

NOTE: We also offer consulting services for Natural Disaster loans and general business activities. Click HERE for natural disaster consulting. 

 

Aside from our specific expertise with the program and familiarity with required procedures and forms, we’ve come to learn that many CPAs and attorneys are providing incorrect information to their clients about this program. They may mean well, but their ignorance of actual SBA protocols can be very harmful, in our opinion, to the business due to the misinformation they provide.

A CPA or an attorney may have general knowledge of the COVID-19 EIDL program. With good intentions to help their clients, we’ve seen how their answers are attempting to be helpful, but often miss the mark with specifics about some of the complicated challenges and SBA communications of this program.

Pretend you inherited your Great Uncle’s 1963 Jaguar E-Type.
Trevor at Lime Rock Park, CT where Paul Newman Used to Race
 
It needs maintenance, or maybe a repair. You take it to your local mechanic, the one who has changed the oil and rotated the tires on your 2001 Honda for the past 22 years.
 
With good intentions, your mechanic may attempt to help you with maintenance or repairs on the classic Jaguar.  
But a mechanic who specializes in Jaguars–especially old ones–is probably a better choice, don’t you think?
 
Does that help you better understand the difference between your CPA/Attorney and Aurora Consulting?
 
We processed hundreds of EIDL files during the pandemic to obtain $70M in approved funding. We gave away free advice about the program to thousands of Small Business Owners. We spoke to hundreds of SBA Agents.
 
Since September 2022, we’ve assisted dozens of Clients and others with questions and problems with their COVID-19 EIDLs.
 
  • How many COVID-19 EIDLs did your CPA/Attorney process?
  • How many SBA Agents have they spoken to?
  • Did they read the SBA’s EIDL SOP (all versions)?
Where are you going to take that Jaguar now?
Facts of Forgiveness   Find out how congress is focusing on fraud vs. forgiveness despite business owners still struggling from the colossal impact of COVID.  

Can SBA Forgive a COVID-19 EIDL?

No, but Congress can because they did it before.

  • Small Business Owners with COVID-19 EIDLs want their loans Forgiven
  • Facts about the Forgiveness of SBA EIDL loans
  • Congress is Focusing on Fraud, Not Forgiveness
  • Action Plan: What You Can Do
  • You Received a COVID-19 EIDL and You Can’t Pay It Back
  • Resources & References

Business Owners want their COVID-19 EIDLs Forgiven

The question most often asked by Small Business Owners who took an SBA COVID-19 EIDL during the pandemic is this: Why doesn’t SBA simply FORGIVE the COVID-19 EIDL?

The answer is simple: the United States Small Business Administration (SBA) does not have the regulatory authority to forgive Federal debt.  Only one institution can do that, the United States Congress.

In our internet travels we often see frustrated and angry Small Business Owners who want to have their COVID-19 EIDLs forgiven.  In search of answers, these folks often turn to infamous “click-bait” sharks who provide false and inaccurate information, mostly to get people’s hopes up that SBA will forgive these loans.  

We have seen occasionally where an online discussion will include a comment from someone saying something like, “SBA forgave Hurricane Katrina EIDLS!”  Sadly, comments like this add fuel to the false hopes fire because this is actually TRUE.  But we need to look further into how SBA was able to forgive the Hurricane Katrina EIDLS because that natural disaster impacted the future of SBA’s EIDL program in positive and negative ways.

We don’t say that the COVID-19 EIDLs should not be forgiven. 

What we have discussed time and again is the fact that the program does not currently offer forgiveness for these loans. We agree that many small business owners took on this debt “under duress.” Unfortunately, this program exists for exactly the reason that it was used by those small business owners: to assist with lost revenue as a result of a disaster. In this case, the disaster was the COVID-19 pandemic.

We set out in March 2020 to communicate factually correct information for small business owners about federal programs. Having gone through the mortgage meltdown of 2008 through 2010, Trevor knew the amount of misinformation put out by bad players on the Internet would be legendary and would confuse small business owners.

Like everyone else, we did not know where this pandemic was headed, and what the results would be on the economy of the United States, or on the livelihoods of millions of small business owners. But we knew one thing for certain, as Trevor learned during the mortgage meltdown: people would turn to the Internet, they would turn to communities online, they would seek out through desperation accurate information to help them manage the crisis.

We adhere to our original commitment to this day: provide factually accurate information that business owners can rely on for understanding the program, and in their decision-making processes to continue to maintain and grow their businesses.

We believe this commitment proves that we certainly do not trivialize any aspect of the small business owners’ struggle during and after the pandemic. But we will not relent from our consistent messaging that, at the moment, the COVID-19 EIDL loans are NOT FORGIVABLE.  We maintain this position, especially considering the volumes of misinformation here on YouTube and elsewhere on the Internet perpetrated by people who truly want to take advantage of the small business owners’ desperation. 

These unsavory players consistently provide inaccurate and often false information about forgiveness, trampling on the desperation and hopes of small business owners that the loan will be forgiven. These people provide this inaccurate information for one purpose: their own self-interested need to build an audience and earn money off the backs of unhappy small business owners.

If you look at the number of subscribers we have and compare those to many of the other channels, you will see our numbers are substantially smaller. We get that. We understand that not everybody wants to embrace the factually accurate messaging that we present. And we’re OK with that. Just as we were during the COVID pandemic when we provided similarly accurate information to help small business owners navigate the nightmare process of the COVID-19 EIDL program. We gave away accurate truthful and free information day in and day out. We did it here on YouTube, we did it on our blog, and we did it with free consultation phone calls. 

Circling back to the concept of forgiveness, we reiterate our consistent messaging that, if a small business owner truly wants to receive forgiveness for their COVID-19 E IDL, then they should implement aggressive letter writing, phone calls, social media, and texting campaign to their political representatives.

Only the United States Congress has the authority to make some or all these loans forgivable.

We recently researched the SBA’s natural disaster loan program for small business owners in Louisiana in the aftermath of the devastation caused by Hurricane Katrina. We discovered that Congressional legislation passed in 2007 and 2014, allowed $391M of Hurricane Katrina disaster loans to be written off and forgiven.

Facts about the Forgiveness of SBA EIDL loans

Congress controls the purse strings of the United States Government.  Congress directs the government how much money they can spend (see the recent debt-ceiling debacle), and how they can spend it. Congress enacts legislation to provide money for the government to spend, such as the CARES Act in 2020 which provided for COVID-19-related spending, including the SBA’s Economic Injury Disaster Loan (EIDL) program.

Who created the EIDL and who created the SBA? CONGRESS did!

The SBA EIDL was created in 1953 along with the creation of the Small Business Administration. The EIDL was created to assist Small Businesses to recover from a natural disaster. 

Hurricane Katrina Changed the EIDL Program.

SBA’s mandate from Congress to provide loans for natural disaster areas had a statutory limit of $5M per “jurisdiction.” 

The catastrophe of Hurricane Katrina and the damage caused in Louisiana prompted the representatives, Senators, and Congresspeople, to request that Congress lift the SBA’s statutory disaster loan limit of $5M per jurisdiction. These representatives argued that the devastation was so vast that much more disaster funding was needed.

In 2005, in response to Hurricane Katrina, The Republican-controlled Congress and White House agreed to lift the cap. That was the good news.  The bad news was the removal of the cap came with a requirement: SBA disaster loans could not be forgiven.  

This requirement changed the entire EIDL program to remove forgiveness on future EIDLs, not only Hurricane Katrina loans.

Sen. Mary Landrieu, D-Louisiana, and Sen. Carl Levin, D-Mich., among others, argued that this ban on loan forgiveness, without subsequent congressional action, was discriminatory.

“We have never imposed this restriction that is in this bill on any community in this country,” Levin said. “We have lent money to Rexburg, Idaho; we have lent money to Johnstown, Pa., we have lent money to Clifton, Az., we have lent money to Albion Borough, Pa; we have lent money to Vassar, Mich., in my home state.  But now we are telling the victims of the worst disaster we have had in this country that the Stafford Act provisions, which, under certain circumstances, could permit the forgiveness of a loan, will not be available to them.”

No matter the entreaties of the Louisiana representatives, the Republicans in Congress held firm to the prohibition on SBA disaster loan forgiveness.

Ultimately, the Louisiana representatives were partly-successful in their request: Congressional legislation passed in 2007 and 2014 allowed $391M of disaster loans to be written off and forgiven.

But that wasn’t the total amount of loans.

It is important to note that not all SBA disaster loans were forgiven.  Total loans for Gulf Coast hurricanes Katrina, Rita and Wilma amounted to $6.3B.  With only $391M forgiven, a large dollar volume of disaster loans remains due and payable to this day.

In 2021, New Orleans District “D” Councilmember Jared C. Brossett sent a letter to President Joseph R. Biden requesting further relief for disaster loans in the form of forgiveness.

For the SBA’s COVID-19 EIDL program to be forgiven, Congressional legislation will need to be proposed and passed.  

Congress is Focused on Fraud, Not Forgiveness

The Small Business Administration, like other Federal Agencies, features a special Office of Inspector General whose duties include auditing the agency to protect taxpayer money, including where criminal and fraudulent activity has impacted an Agency or program.

The SBA’s OIG has made substantial media pronouncements about the dollar value of fraud perpetrated on the SBA’s various COVID-19 programs, including the EIDL. *See SBA OIG report attached in our Fraud vs. Forgiveness download by completing the form below.

Sadly, when compared to the total dollar amount provided to Small Businesses, it is our opinion that OIG’s focus on what will probably be a small percentage of fraud relative to the total funding is a lot of noise about an important, but secondary issue. 

The primary issue facing Small Business Owners is recovery from the pandemic.  
Small Business Owners, focusing on recovery, may be struggling with making payments towards a debt obligation they never wanted in the first place, but had literally no choice but to receive to survive the pandemic.

The SBA’s OIG reporting to Congress is creating, in our opinion, an unreasonable focus on the fraud that occurred. This focus is a distraction from the attention and assistance the Small Business Owners really need: helping them continue pandemic recovery and providing better repayment options.

There are also calls from Legislators for the SBA to enforce repayment of the COVID-19 EIDLs. 

Due to recent complaints from several United States Senators who wrote letters to the SBA Administration that SBA should enforce collection on defaulted COVID-19 EIDLs and PPP loans, there does not currently seem to be a taste in Washington D.C. to allow for forgiveness legislation to proceed.

*See letter to SBA from Senator Joni Ernst attached in our Free Download when you complete the form to the left.

Facts of Forgiveness   Find out how congress is focusing on fraud vs. forgiveness despite business owners still struggling from the colossal impact of COVID.  

You Received a COVID-19 EIDL Loan and You Can’t Pay It Back: What To DO?

We’re so very sorry when we hear about so many small businesses continuing to suffer due to the economic ravages of the COVID-19 pandemic.  We often hear from business owners who received an SBA COVID-19 Economic Injury Disaster Loan (EIDL) and now find they cannot repay the loan.  

Sometimes the challenges are simply a matter of cash flow: the business can keep itself afloat, but making the EIDL monthly payment is an additional burden on the income of the business.  Other times we’ve learned the business is hanging on by a thread—still open and operating but doomed to fail soon.  We also hear the terrible stories of businesses that have failed and closed altogether.

We are passionate about Small Business. We’re committed to supporting Small Businesses, so we’re extra level miserable when we hear of the troubles so many folks are facing to keep their businesses alive.

The pressing issue is the repayment of the COVID-19 EIDL: What to DO?

Generally speaking, the Small Business Administration holds a lien against the small business for any EIDL loan greater than $25,000.00.  Should the business fail and default on the repayment of the loan, the business assets become the property of the SBA to dispose of as needed for the purpose of recouping the remaining balance of the loan.

For loans greater than $200,000.00, the business owner(s) have personally guaranteed repayment. Thus, in the event of the loan defaulting due to inability to repay, and after disposing of the business assets to cover money owed, should there remain a balance of money owed, the SBA has the right to obtain a “deficiency judgment” against the business owner(s). That judgment can cause liens to be placed against personal assets, or, in the extreme, seizure of personal assets, garnishment of wages, and withholding of federal benefits, tax refunds, even Social Security benefits payments.

This is serious business. We urge all small businesses with a COVID-19 EIDL to purchase our comprehensive expert guidebook “Post-Closing Blueprint” to understand their responsibilities and to follow our recommended strategies should the loan repayment become difficult to manage. We’re hoping folks will rely on our guide as the primary reference source BEFORE they interact with the SBA to try to resolve the defaulted loan situation.

Based on our recent interactions with SBA as advocates for our clients, we know that SBA is wrangling internally with issues about defaulting COVID-19 EIDL loans. Their procedures are evolving frequently. SBA is developing a response to the ongoing problem of borrowers’ inability to repay their loans.

When all is said and done, even without collateral and without a personal guarantee, a defaulted federal debt is a serious problem.

One word of caution: a lot of the “urban mythology” out there would have folks believing “the SBA is never coming after me and my little business” leading them to simply ignore the debt obligation.   We believe this is a tragically horrible strategy.  The federal government has a long memory, and you don’t want to be on the receiving end of their collection efforts, ever.

Especially as several US Senators are urgently pressing the SBA to aggressively enforce collection on these debts, even those loans for less than $100,000! 

And again, we reiterate to all small business owners in the United States who took a COVID-19 E IDL to save their business: contact your political representatives. Put the pressure on Washington DC to get these loans forgiven.

References
  • Nine years after Katrina, federal government has forgiven $391 million worth of federal disaster loans. NOLA.com
  •  SBA OIG Report on Hurricane Disaster Loans for Gulf Coast hurricanes. 
  • NEW ORLEANS – District “D” Councilmember Jared C. Brossett Letter to President Biden
  • The Stafford Act: The Stafford Act Public Assistance program provides disaster assistance to States, tribes, local governments, and certain private nonprofit organizations.  FEMA Download
  • Blog written by TREVOR CURRAN. No AI was used in this publication.
 

#EIDL #COVIDEIDL #COVID19 #SBACOVIDEIDL #SBALoan #HurricaneKatrina #DisasterLoan #EIDLForgiveness #Forgiveness @EIDLRepayment #SBAForgiveness #SBADisasterLoan #SBADisasterLoanForgiveness #SBAEIDLForgiveness #SBACOVID19EIDLForgiveness #DisasterLoanConsulting #DisasterLoanConsultant #NaturalDisaster #NaturalDisasterLoan #Hurricane #Tornado #Wildfire #Drought #Flooding 

3 Key Issues with the SBA Natural Disaster EIDL Loan

YouTube Playlist
YouTube Playlist

An article recently published by Louisville Public Media, shares how homeowners and business owners are working on their recovery from a natural disaster, notably, the Kentucky floods of July, 2022.  We learned so much about the SBA and its disaster loan program during COVID by assisting thousands of Small Business Owners.  There’s good news, and there’s bad news. We reflect on both.

We summarize several key points from the article to help you better understand three things about SBA natural disaster loans:

  1. SBA is the lending processing “infrastructure.” That’s why FEMA refers you to SBA for the loan. But, the lending process can be complicated, lengthy, confusing, and bureaucratically rigid.
  2. You must apply for the SBA natural disaster loan and receive a decision before you can request most other FEMA assistance.
  3. SBA sees its natural disaster loan mission as making your Small Business “100% whole to cover uninsured losses.”

One homeowner interviewed refused to accept an approved SBA loan because “The strings that are attached and all the things that go along with an SBA loan is quite extraordinary.”

An SBA public affairs specialist is quoted in the article saying, “Our job is to try to make someone whole as near as possible. We cover up to 100% of their uninsured losses.”

Our experience with SBA is this: while these SBA intentions are noble, SBA’s internal workings often present many obstacles to the goal of approval, notably with poor communications between SBA and applicants and with inconsistent underwriting standards applied by SBA staff.

Investigators from other governmental organizations have previously determined the FEMA-SBA process is overly complicated and poorly communicated. Many people in a disaster situation simply cannot understand why they must apply for a loan, nevertheless a loan through the Small Business Administration.

These same investigations uncovered the fact that many people “leave money on the table” by failing to apply for loans or turning down loan offers. Many others are frustrated by slow response times.

In our work during COVID-19, we often advised people to follow “Trevor’s Golden Rule: Always Apply.”   The SBA natural disaster loan can provide a much-needed lifeline to recovery at very low-interest rates.  And applicants do not need to accept the loan even when finally approved.

Small Business Owners should note that “FEMA does not offer grants to businesses. SBA loans are the primary federal resource available for…businesses…(damaged) in a disaster.“

A researcher who is an Assistant Professor at a University, interviewed, provides the following feedback based on her research on how communities, including businesses, recover from disasters. Her research “shows that businesses whose owners receive SBA loans are more likely to survive after a disaster.”

A business owner interviewed in the article stated that she applied for an SBA natural disaster loan but was “declined…because of credit.”

We learned that SBA’s declinations for credit are misleading.  First, SBA’s own underwriting guidelines for Loan Officers state that an applicant for a natural disaster loan does not have to be denied due to credit.

Second, we know from experience that SBA loan officers often don’t know how to read a credit report, relying solely on the credit score, which is addressed in the underwriting guidelines as “not the only reason” for denying the application. SBA’s guidelines encourage their loan officers to delve deeper into credit history and ask questions about credit rather than rely solely on credit scores.  But we know from experience that SBA loan officers very often ignore these guidelines and base their application decisions solely on credit score.

thumbnail for the video about credit score Linda Rey and trevor sitting on chairs with curious facial expressionsTrevor has discussed credit scores extensively on our YouTube channel.  We have a playlist dedicated to credit score inquiries, low credit scores when applying for a loan and how to write a credit explanation letter. Watch this video on the myth of running credit and the common question about “hard vs. soft hits.”

Lastly, regarding credit, many applicants have identity protections including locked credit reports.  We have seen many, many times where SBA will decline an applicant for “credit” due solely to the reason that the credit report was locked and SBA could not access the report.  SBA representatives consistently fail to disclose this pertinent fact to applicants and SBA’s declination letter makes no mention of a locked credit report stating only that the application was declined “due to credit.”

We have stated repeatedly in our YouTube videos that you must request Reconsideration to fight when your SBA natural disaster application is declined.  This brings your application to a higher level of scrutiny that can get the negative decision overturned for a positive result in your favor: approval.

Our final observation on this excellent article from Louisville Public Media. Based on this quote from a disaster resource attorney who works with an organization that provides free legal assistance:  “…she tells clients who do qualify for an SBA loan to take it because not taking it may disqualify them from additional assistance and the other financial option will most likely be a personal or bank loan.  If a disaster survivor doesn’t use financial assistance, they might leave the area…”

During the pandemic, we assisted thousands of Small Business Owners with the SBA program.  We know the complaints and anxieties by Small Business Owners, about the program, are legendary.  But we also know that, without that assistance, so many more businesses would have failed due to the pandemic.  

That’s why we provide these YouTube videos and our expert advice: we know the value of these programs. That’s why we often say, “Stop complaining and start submitting!”  

  1. Get your SBA natural disaster application submitted.
  2. Follow up and respond in a timely manner with documents.
  3. Set your frustrations about SBA’s process aside; do the work.  

The benefit you receive on the other side is tremendous and will help your business recover from the natural disaster. 

You can visit our EIDL Natural Disaster Consulting service page where you can complete a survey if you’re interested in assistance through this complicated process.

PROACTIVE & PREPARED   Get our list of documents we know Lenders & SBA ask for. These are also good to have handy at all time as a standard practice in business.

US Treasury State Small Business Credit Initiative

The federal government is making available $10 Billion and all small businesses in the country are eligible for the money.

This is not the paycheck protection program or the economic injury disaster loan program. Both of those Covid-relief efforts have expired. This is also not a loan program from the Small Business Administration. It’s from the treasury department.

The program is called the state small business credit initiative, or SSBCI, and it works like this:

  • Your State submitted an application to the US Treasury proposing how to use the funds
  • US Treasury reviews and approves and funds directly to your State

So how does your business get access to these funds? You can go to the Council of Development Finance Agencies’ state resources map. The funds, once received by the states, will then be distributed to existing and authorized organizations that finance and support local small businesses. 

These are community development investment funds (CDFIs), minority deposit institutions (MDIs), community banks, economic development groups and other non-profits that work with small businesses in their areas.

The funds will be used for loans, grants and equity investments. They can also be used to collateralize new debt with existing banks or insure their repayments. The whole idea is to get money in the hands of small businesses that wouldn’t otherwise be able to get financing through traditional lenders because of their financial history – or lack thereof.

Certain funds are targeted specifically to minority-owned businesses or businesses located in low- to moderate-income areas. But just about any business can apply for these funds, even non-profits.

Find out the organizations that are receiving SSBCI money from your state and reach out to them.

They need to get to know you and your business. The application process will take a bit of time so you want to gather your documentation – bank statements, tax returns, financial records – and begin down that road. You should be applying for funds from multiple places.

These organizations aren’t going to come knocking on your door. But they do have money to spend. Your objective is to get them to spend it on you.

US TREASURY small business credit initiative ebook cover page with lighthouse

Need more Working Capital?

SSBCI Treasury Guide

Through this program, the Federal government is making available $10 Billion directly to States for all small businesses in the country. In our Step-by-Step guide, we explain the program and outline how to access the funds including examples of eligibility and use of funds. If you want instructions on how to submit a financing request, check out our Business Financing Application Fundamentals BEACON GUIDES.

SBA: The Painful Truth

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For more than 18 months we’ve processed EIDL files for our Clients. For 18 months we’ve dealt with the complete dysfunctional insanity known as the Small Business Administration (SBA). Today we’re sharing with you the “painful truth” of what you can expect with your interactions with the SBA.

We know there are many videos, blog posts, newspaper articles, not to mention SBA “good news” propaganda out there in the world. We know that millions of Small Business Owners are desperate to receive the vital funding available through the EIDL program. We know that, in the moment of truth when a Small Business Owner (SBO) receives ANY kind of notification from SBA, or any hint of activity or whisper of progress, the typical SBO loses their minds, thinking, “Finally! At long last!” 

It’s a lot like Tom Hanks on the beach in the movie “Castaway” when he sees an airplane flying overhead. He’s so desperately, depressingly, excited, to even dare think he might be one tiny step closer to being rescued that his emotions overwhelm him, first with the excitement stage, then in the absolute grief stricken stage when he realizes he’s lost, without any hope.

That’s exactly how millions of SBOs feel with the SBA and the EIDL process.

Here are some “painful truths” to help you prepare yourself to better handle your emotions and potential anxiety.

The Background.

Trevor is a 30+ year veteran Mortgage Loan Officer. He has literally “seen it all” and he dealt, almost exclusively, with U.S. Government lending programs. He leverages this experience in two (2) ways for our EIDL Clients. 

First, because he understands Government regulations and processes, he approaches the EIDL application with a different perspective from the average Small Business Owner. It’s more pragmatic, more logical, more process-driven. 

Secondly, given the opportunity to speak directly with an SBA representative, Trevor flashes his credentials like a big city homicide detective in a small town police station after his grandmother smacked her car into a neighbor’s shrubbery. 

He’s polite, respectful, but, because of his experience, and because he presents himself as a colleague and fellow traveler, the SBA representatives, more often than not, communicate with him differently than they would to you. Often, they share insights into the SBA process that would NEVER be revealed to the average SBO.

For instance, yesterday a young SBA Loan Officer made the following two statements upon hearing Trevor’s “I’m a Loan Officer” introductory rap: “I’ll be honest, the guidelines change almost weekly.” And, “I’m not talking out of school, but sometimes, I get quite frustrated with many of my colleagues and the notes they make in the files.“

In other words, there’s an entire “behind the scenes” aspect that SBOs simply cannot grasp. And you may not understand how that behavior at this Federal bureaucracy is prohibiting you from getting access to these vital funds.

Important “Painful Truths” to understand.

Painful Truth: Seven days to submit documents.

SBA says you have seven days to submit documents (we’ve seen three days also!). Problem is twofold:

1. Even if you submit the requested documents, say an IRS 4506-T, within three minutes of receiving the request, you’re most likely to hear nothing back from SBA for weeks. Or months. 

2. We’ve seen SBA indicate this ridiculous rule of “seven days to submit” only to get an email six weeks later, looking for the same documents, whether they were submitted or not. In short, what the SBA “says” about your process must NOT be trusted AT ALL.

Painful truth: multiple IP address log-ins. 

Yes, we’ve discovered that SBA representatives are putting fraud alerts on your EIDL file if you’ve logged in from multiple different IP addresses, whether by emailing the SBA or by visiting the SBA portal. 

That fraud alert is literally stopping your file in its tracks. 

Many SBOs have been working for many months, or even more than a year, to get their EIDL processed. In all that time, out here in the real world, it’s perfectly reasonable that someone might use different computers or devices, or different Wi-Fi networks to interact with the SBA. 

BUT, instead of understanding how the world actually works, the SBA treats these normal activities as fraudulent. Meanwhile, the real criminals have been stealing money from the SBA and the US Government since day one. 

You are getting lumped in with the criminals simply because you used your iPhone to log into the SBA portal on Monday, and then your home computer on Thursday.

Painful truth: SBA representatives either don’t read your complete documents submitted, or, worse, they don’t know their own required forms.

We’ve seen it all in this regard. We’ve used the SBA’s own forms (3501, 3502, 1368) to submit Reconsiderations and Appeals, only to get yet another ridiculous document request, or worse, a declination, because the SBA person working on the file didn’t bother to read the SBA forms we submitted, or didn’t understand them.

The reasons for this behavior are layered, ranging from:

  • lack of time to review the file thoroughly (a true underwrite takes hours, not minutes)
  • lack of training or knowledge, and finally
  • utter incompetence

What can you do about this? Nothing, other than keep plugging away.

Painful Truth: Management Review

Even if your SBA Loan Officer is a Superhero on your file, because of the aforementioned fraud consciousness of SBA, your file must go to a supervisory level to sign off on the Loan Officer’s approval. Not only can this be a “black hole” for your file disappearing, but some of these supervisors are attorneys, not loan officers. So, even if you had a great conversation with your Loan Officer, once the supervisors get your file…well, you understand the painful truth revealed here.

When your EIDL file is declined, you will NEVER in ONE MILLION years be told the truth of why the file was declined.

STOP ASKING WHY. They won’t tell you, or will give you a reason that may or may not be accurate. This is mostly because there are no accurate notes in your file at SBA and also because to answer your question literally requires a FULL UNDERWRITING REVIEW of your file.

The Customer Service rep or Tier 2 Agent cannot give you that level of attention. They cannot. PLEASE STOP ASKING. 

Final Painful Truth: YOU, the EIDL applicant. 

Your emotion and anxiety and failure to take care with your own documentation, gets in the way.  We see this time and time again with our own clients. 

They want to tell “story”, and yet, they submit documents that are inadequate, incorrect, contradictory, and incomplete.

We’ve said this thousands of times: STOP STORY-TELLING.

The SBA reps not only don’t want to hear it, but you’re actually muddying the waters of your loan process. Do you know what it’s like to have to sort through 23 novel-length emails explaining and telling stories? It’s impossible.

We’re advocates for our clients. Can you imagine how the SBA representatives react to this nonsense? You’re literally your own worst enemy with the EIDL process. We know, the truth is painful. 

PEEK at 17 Pages   What's all that's included! We have first hand experience with what you're responsible for especially if you make changes in your business.

The Myth of Running Credit

Credit reports is one of Trevor’s areas of special expertise after a 30 year career in the mortgage industry. 

In his experience, inquiries will impact (the correct word as per the credit bureaus) by 8 points.

Trevor has read thousands of credit reports to witness these results. 

This “myth” of credit inquiries damaging a credit score is decades in the making and is now so firmly baked into urban mythology causing us to respond to concerns, about running credit, hundreds of times.

If someone is LEGITIMATELY running your credit, having inquiries on your credit report is NOT the reason your EIDL loan is declined. READ THAT AGAIN PLEASE.

Please stop wasting valuable energy with unnecessary excuse-making and finger-pointing, and start drafting a coherent, sensible, factual statement to address your credit history.

And please start getting your financial documents in order and address any inconsistencies that could cause SBA to decline your loan. The really good loan officers try to fit your business into the guidelines to accomplish an approval but often, business owners fight the system thinking there is a conspiracy.

Be better than the SBA and own your responsibility to the process and stop worrying about HARD INQUIRIES. I promise you INQUIRIES are never the reason for a declination. It’s too often mistakes made by mistakes in their rush and disregard to tend to the details.

 

See our other videos on credit concerns:

Rebuild Your Credit EBook
rebuilding credit ebook cover page with broken piggy bank with a bandaid