Repayment Of The COVID-19 EIDL

Would it surprise you that SBA makes it shockingly DIFFICULT for BORROWERS to make PAYMENTS?

Since January of this year, we have been inundated by small business owners whose COVID-19 EIDLs were sent to the US Treasury in default status for collection actions by the government. The reasoning from SBA is these loans were considered unrecoverable for repayment, and therefore subject to official collection action. The loans were shipped over to the US Treasury, where a 30% penalty was added to the total loan balance.

Business owners in this position find themselves between a rock and a hard place. So many of the Borrowers who contacted us shared nightmare stories of how they tried to repay the loan only to be met with absurd incompetence on the part of SBA.

We dug deep in our attempts to help our Clients fight this egregious error.  

And we say “error” because so many of these loans should not have been sent for collection.  We’ve seen too many instances where it was SBA failures that caused the problem with the repayment of the loan. Notable issues we encountered:

1. SBA failure to properly notify the Borrower of the first payment due date and required monthly payment amount after the conclusion of a 30-month deferred payment period.  The emails that people received—IF and WHEN they received them—are so vague as to be a completely unacceptable method of notifying borrowers of their debt repayment obligations.

No account numbers. No hard and fast due date. No mention of the required monthly payment.

2. SBA sending notifications by USPS mail to the WRONG addresses. Even in the case of one of our own pandemic Clients where WE had changed the address with SBA and confirmed the change multiple times. Correspondence, including payment and delinquency notices, went to the wrong address. The business owner only became aware of the error months later when handed a pile of mail that had been collected at the wrong address for months.

3. SBA miscommunications by telephone and email when Borrowers contacted for assistance to either manage the repayment technology through the MySBA portal online, determine the actual start date of payments, or determine the amount of arrears so the Borrower could attempt to bring the payments current.

4. SBA failed to thoroughly notify ALL Borrowers of the special remediation program “Hardship Accommodation Program” which allows Borrowers who are facing financial challenges to receive SBA approval for temporarily lower payments.  An SBA Administrator, in a YouTube interview, admitted that SBA did not make a formal announcement about this program due to concerns that “the wrong people” would take advantage of it.

We encountered many other terrible errors committed by SBA in its poorly conceived repayment process for COVID-19 EIDLs, too many to list here.

If your EIDL was sent to US Treasury and you believe it was done in error, you must FIGHT with SBA to demand that SBA recall your loan to regular servicing and remove it from collection action at US Treasury.

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EIDL Class Action Lawsuit against SBA | Opinion: Who’s to Blame

Four years ago, Congress passed the COVID CARES Act.  The legislation tasked the smallest of federal agencies–the US Small Business Administration–with the one of the BIGGEST MISSIONS in American history: the distribution of massive amounts of funding to the American Small Business community.

With uncertainty over the depth and length of the pandemic, including lockdowns, many Small Business Owners found salvation through the monies distributed by SBA during the pandemic, including the COVID-19 EIDL program.

SBA based its COVID-19 EIDL program on its long-existing natural disaster loan program, a lending directive in place since 1953 to provide Small Businesses with low-cost loans to repair physical damage or make up for lost revenue as a result of a natural disaster like a hurricane, tornado, drought or wildfire (among many other types of disasters).

Four-Million Small Businesses received COVID-19 EIDL funding, some in multiple and increasing increments.  Many of these same Small Businesses had never funded their businesses with debt financing before, so the lending process, including application, distribution and repayment responsibilities were all new concepts to these business owners.

We have seen since that time how many folks seem to have “short-term memory loss” when it comes to the terrible economic ravages of the pandemic. We also see the other side of the coin with folks retaining vivid memories of the impossible process of obtaining the pandemic funds from SBA due to overly-complicated procedures, poor communications, and other systemic failures of this tiny federal agency. 

Many businesses never received any funding at all, or, if they did, the funding was insufficient to provide the relief intended by Congress.

We know that many people today, those with that “short-term” memory problem, often say, “I never wanted this COVID-19 loan. The government should have given me this money for free. Now I’ve got a loan I’m having a problem paying it back and the SBA…and the SBA…and the SBA…and…and…AND.”

We respond, saying, “Yes you’re right the SBA has a lot of difficulties but the SBA was charged with a mission during the pandemic by the Congress of the United States and they delivered on the mission. SBA accomplished the goal: they put money into your hands and into the American economy to get the economy on track during a pandemic.“

While we’re all blaming the SBA and complaining about the SBA and getting upset with the SBA, we’re forgetting that it’s the people in Congress who have let you down.

The Congress controls the purse strings of the US Treasury. And Congress has failed the SBA, and by extension, the American Small Business Owner, by failing to properly fund the SBA.

Congress has not reauthorized the SBA in over 20 years.  In 2023, by contrast, Congress reauthorized the Federal Aviation Administration as they do with other federal agencies from time to time. Congress gave the FAA a substantial increase in funding to hire new air traffic controllers and implement new technologies to keep us safe in the skies.

But what about you small business owners?

Congress has not reauthorized the SBA in over two decades and between natural disasters such as Hurricane Katrina,  Superstorm Sandy, wildfires in Maui and California, and many other disasters across the United States, the SBA can barely keep up.

Never mind that SBA is tasked with collecting the repayments on those 4 Million EIDLs from the pandemic.

The SBA in our opinion is underfunded, overworked, and overwhelmed.

SBA today has a huge mission to deliver on with minimal resources thanks to Congress’ failure to properly fund the agency.  

Next time, take a moment before you get upset with the SBA. Take the approach that we take when dealing with them: take a deep breath, find a few ounces of extra patience, and understand that you’re dealing with a bureaucracy and there is a procedure and a process for everything, yet the agency is working stretched to the limit.  

If you follow that advice, then,  yes it’s going to feel frustrating but you’re going to have a better comprehension that SBA’s failures can be repaired by Congress.

Contact your political representative as a Small Business Owner CONSTITUENT and tell your congresspeople to get SBA more money.

In the meantime when you deal with the SBA, try to have a little more patience and a little more charity because those folks do have good intentions and they are trying to do their best for you, in our experience.

We created our “SBA COVID-19 EIDL Guidebook” as a comprehensive resource for you and managing your COVID-19 EIDL.  

We discuss everything from “Hardship Accommodation” to best practices for repayment to closing your business or changing ownership and so much more.

You can purchase your copy of the guide by CLICKING HERE

You get FREE updates through December 2024 when you purchase now. And updates are coming to include expanded Hardship instruction and Treasury Dispute process and strategy.

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COVID-19 EIDL Hardship Accommodation Update: Change of Ownership

Many struggling businesses are requesting a reduced payment through SBA’s hardship accommodation program.  SBA will allow you to reduce your monthly payment to as little as 10% of the required payment for a period of 6 months.

A request to extend the 6 month period can be presented to SBA for up to 3 extensions for a total of 2 years of lowered payments.

SBA updated its Hardship Accommodation Program (HAP) guidelines on February 15th, 2024. As per those guidelines, your loan does not have to “current” on payments to be approved for the HAP. 

 

If your loan was assigned to US Treasury, but is not delinquent more than 180 days, SBA can recall the loan from US Treasury for regular servicing when the Borrower contacts SBA to reactivate a repayment action, via the HAP request process.

For loans less than $200,000, a first request for HAP can be accessed directly on the MySBA portal.

For loans of $200,00 or greater, send an email to cesc@sba.gov SBA will respond with the HAP application form.

BUT…if your business had a change of ownership, or is considering a change of ownership, SBA will NOT approve a hardship accommodation request until a separate change of ownership process and SBA approval is completed.

You must submit the SBA “Change of Ownership” form. The new owner(s) will be required to submit SBA Form 912 and any other documents SBA requires. Note that SBA may require payment of the COVID-19 EIDL–partially or in full–to process a Change of Ownership request.

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COVID-19 EIDL Forgiveness: NOT HAPPENING

Often we’re chided and derided for our communications about the EIDL program and the SBA. We operate under the credo that we refuse to tell folks what they want to believe when it’s inaccurate or flat out delusional. 

We prefer to share the tough truths so people can better prepare and manage expectations for their business.

We built a substantial reputation for our expertise in this way of sharing the facts, including having media reporters request our insights, and even having a Client referred to us by their Congressional representative.

We assisted our Clients to obtain $70M in approved SBA COVID-19 EIDLs during the pandemic. With our free YouTube videos, we estimate small business owners used our expert knowledge to obtain another $30M in approved loans. As such, we’ve heard from many, MANY small business owners who thanked us for our free advice and how they used the expertise we shared to get their loans approved.

𝙇𝙚𝙩’𝙨 𝙜𝙚𝙩 𝙩𝙤 𝙖 𝙝𝙤𝙩 𝙉𝙊𝙉-𝙏𝙊𝙋𝙄𝘾.

We know there is constant talk about how Small Business Owners with COVID-19 EIDLs believe their loans should simply be “forgiven” and the debts discharged away from their responsibility.

We discuss this topic frequently on our YouTube video channel in our typical manner: with facts, not magical fantastical thinking.

Since the days of the pandemic we presented our viewpoint that ONLY Congress can modify the COVID-19 EIDL program. We expressed our expert opinion that it was unlikely these loans would ever be forgiven, but we presented a concept that would be helpful to Small Business Owners with these loans: Congress could modify the loans and lower the interest rate to make the monthly payments more affordable.

A few months back, we presented research in one of our guidebooks showing evidence that supports our contention that COVID-19 EIDLs would never be forgiven.  We want to repeat a consistent theme we return to time and again when folks complain about the SBA and the EIDL program: 

𝓒𝓞𝓝𝓖𝓡𝓔𝓢𝓢

SBA’s systemic dysfunctions are legendary and have a long history dating back long before the COVID-19 pandemic.  Small Business Owners have too often faced substantial obstacles to receiving assistance from this federal agency. 

𝐌𝐚𝐧𝐲 𝐟𝐨𝐥𝐤𝐬 𝐜𝐚𝐥𝐥 𝐭𝐡𝐞 𝐒𝐁𝐀 𝐚 “𝐝𝐢𝐬𝐚𝐬𝐭𝐞𝐫” 𝐨𝐟 𝐚 𝐛𝐮𝐫𝐞𝐚𝐮𝐜𝐫𝐚𝐜𝐲.

While we agree that SBA is a disaster, that damage was caused by the United States Congress.  Congress has failed to fully support American Small Businesses by providing the requisite funding to the United States Small Business Administration.

Congress continues that failure by failing to reauthorize the SBA as a federal agency for more than 2 decades, for failing to provide the additional funding SBA needs to improve its systems and manage the repayment of 4 Million COVID-19 EIDLs.

If you are unhappy with the SBA or the COVID-19 EIDL program, your complaint is with CONGRESS, not the SBA.

ⓄⓃⓁⓎ  ⒸⓄⓃⒼⓇⒺⓈⓈ  ⒽⒶⓈ  ⓉⒽⒺ  ⒶⓊⓉⒽⓄⓇⒾⓉⓎ  ⓉⓄ  ⒻⓄⓇⒼⒾⓋⒺ  ⒸⓄⓋⒾⒹ-①⑨  ⒺⒾⒹⓁⓢ

In our opinion, this will never happen based on historical precedent and recent behaviors by certain politicians. Express your disdain and dissatisfaction with the SBA by contacting your political representatives.

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Don’t Surrender to the Bureaucracy

FIGHT US Treasury Collection on your COVID-19 EIDL. 

Since late 2023, the United States Small Business Administration (SBA) transferred tens of thousands of COVID-19 EIDLs to the United States Treasury for collection action.

Small Business Owners across the country are facing the possible destruction of their businesses, their livelihoods, and (in many cases) ruination of their personal financial lives.

In the past 4 months, we’ve been inundated with requests for assistance with this egregious situation. At first, we were reluctant to assist because we didn’t know how we could assist and, worse, we could not know the result of any assistance we could provide. 

A collection action against a defaulted loan is, after all, a collection action designed to recoup funds lost to non-payment of these federal debt obligations.

We heard so many horror stories about SBA’s failures to either communicate clearly on repayment assistance or to completely fail with the otherwise simple repayment protocols required for loans.

Business owners faced collection actions through no fault of their own. We’ve heard from folks who set their loans on auto-pay (as they do with other regularly scheduled bills), only to learn their loans were sent for collection with NO notice and due to the auto-pay feature failing.

Small business owners faced other insurmountable challenges, from the inability to access SBA’s MySBA payment portal due to technology failures and poor SBA communications to payments made through guidance from SBA representatives to prevent collection actions, or to obtain approval from SBA for temporary reduced payments due to hardship. In these instances, the EIDLs were ultimately shipped off arbitrarily by SBA for collection.

In our response to the many requests for assistance, we created a comprehensive US Treasury Dispute consulting package. Our package includes efficiently prepared forms and letters to dispute the collection actions. We went one step further to use our general experience in lending, and our specific experience with the COVID-19 EIDL program, to develop strategies to accompany the dispute paperwork.

We haven’t seen the desired results, yet, of our Clients’ loans being returned to SBA for regular servicing. But we remain cautiously optimistic as we watch this drama work its way through the federal bureaucracy.

Today we received a comment on one of our YouTube videos stating the case to “surrender” in the face of these terrible collection actions.

If your business has been sent for collection to the US Treasury, through no fault of your own, through your repeated attempts to communicate a repayment process with SBA, then we believe you have no choice but to FIGHT.  

Never say “too late” to take action on these collection accounts.  Don’t apply your timeline to a government agency. Here are three things to consider:

First, US Treasury has been completely overwhelmed by the sheer number of defaulted COVID-19 EIDLs sent over by SBA.

Second, as we learned during the pandemic, while assisting our Clients in obtaining $70M in approved EIDLs: the bureaucracy moves at its own speed and gets to things in its own time.

Third, don’t ignore the fact that US government agencies have a hard and fast mandate to address issues presented by constituents—such as taxpayers—and respond, including to official disputes filed by Small Business Owners.

The fact this hasn’t happened yet is only based on the small business owner’s standards. We have a different opinion and approach.

Trevor’s rule of “Always Apply” when it comes to the business loan process, stands true with the US Treasury Dispute process: SUBMIT and FIGHT.

If you surrender due to urban mythological tropes then you don’t really care about your business or your livelihood. If you choose to FIGHT, then a result will surely happen, whether positive or negative.

We saw it firsthand during the pandemic. It will happen again.

FILE your DISPUTE. And FIGHT.

If you need help, we are accepting new Clients for our US Treasury Dispute consulting package through March 31st, 2024.

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Business Owner vs SBA vs Congress

 

The United States Small Business Administration (SBA) is under tremendous pressure from two sides with the COVID-19 Economic Injury Disaster Loan (EIDL) program. Under the CARES Act of 2020, the loan program provided massive financial support to Small Businesses during the pandemic. 

Now, many of those loans are in default status. A default status can occur due to any number of reasons including a missed payment or three, a failure to make full payments, or a failure to make full payments, or the ultimate default: failure to make any payments at all by ignoring the debt obligation.

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On the one side is the Small Business Owner who seeks Hardship Accommodation to repay the COVID-19 EIDL due to continuing economic challenges as they manage their businesses in these post-pandemic times.

Then, there’s the powerful political pressure on the opposite side by the politicians.

We’ve seen in recent months how members of the United States Senate and the House of Representatives—Senators and Congresspeople—are thumping their chests for political talking points and demanding that SBA collect on every penny of COVID-19 EIDLs, including demanding SBA pursue collection activities against small businesses that defaulted on their loan payments.

This second aspect is probably the most brutal because these same politicians are often the same people pursuing sound bites of “Small Business is the backbone of the American economy.”  And yet…here we are.  They would prefer to beat the drums of debt collection to drive business owners into bankruptcy, to heap massive debts with penalties and interest upon their shoulders for years, or even decades to come, with nary a care about their literal constituents, the small business owners.

For our part, as SBA EIDL experts, we’ve seen all sides of this terrible situation.

As a result, we often defend the people working at SBA. We believe they are good people struggling to do their best to meet this huge task dumped on them by the politicians without the requisite support necessary for a mission of this magnitude.

A viewer of our YouTube channel commented in response to our more forgiving and understanding perspective of SBA, “Sorry folks, you’re wrong the SBA doesn’t care…”

We responded, “You’re attributing some nefarious quality of personality to a bureaucracy. That is, on the face of it, absurd.”

We’ve spoken to hundreds of SBA representatives and the majority truly do care about their constituents, the small business owner.

What you need to do is to blame the Congress of the United States for this debacle because the SBA is underfunded, overworked, and overwhelmed as an agency tasked with such a massive undertaking, both during and after the pandemic.

First, Congress required this tiny federal agency to manage the distribution of the huge tranche of pandemic relief funds to small businesses. As task for which SBA was ill-prepared and inexperienced.

Second, Congress is now beating the drum about collecting on the debts with no regard for either the small business owners facing economic challenges nor the SBA inexperience in collecting debts on such a huge scale.

The Congress has not reauthorized this federal agency in more than two decades. By comparison, in 2023, Congress reauthorized the Federal Aviation Administration, providing expanded regulatory authority and a pile of money to upgrade technology and hire air traffic controllers.

No such undertaking is in the works for the SBA.

We appreciate you as a follower of our channel, but, please, before you tell us we are “wrong,” try to take a moment and reflect on our expertise in this area, the expertise drawn from real-time experience that informs our advice, our guidebooks, our consulting services and our YouTube videos.

Sorry, but not sorry.

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Business Owners Constantly Complain About SBA

We see lots of anxiety, anger, and acrimony about the Small Business Administration’s (SBA) handling of the vital pandemic relief program. We see it because of the Small Business Owners who request our consulting services for our expert advice and the folks who comment on our YouTube videos about the COVID-19 EIDL program.

We understand because we’re experienced financing professionals who feel similar frustrations, and have done so since the early days of the pandemic. There are multiple and miscellaneous dysfunctions from poor communication protocols to confusing instructions. 

Lately, the disgraceful exercise where SBA is sending loans to U.S. Treasury for default and subsequent collections without thoroughly engaging with the Small Business Borrower to work out a repayment plan.

Our opinion on this topic, especially after having worked on hundreds of EIDL applications and spoken to hundreds (or maybe thousands) of SBA representatives and thousands of Small Business Owners since March of 2020, is that, for all its dysfunction as a bureaucracy, the SBA is not to blame for the problems experienced by well-meaning and responsible Small Business Owners.

In our opinion, Congress is to blame, here, not SBA.  

In response to the pandemic in 2020, Congress dumped this HUGE project onto this tiny, underfunded federal agency to put vast quantities of money out into the American economy in the form of loans, forgivable paycheck loans, and grants.

Second, Congress (specifically certain politicians) are screaming and shouting at SBA to make every effort to collect payments on the pandemic loans including EIDLs and PPPs since late 2023. The political pressure is powerful and unnecessary.

In both instances the Congress has NOT provided the additional funding SBA needs to manage these huge enterprises.  Congress has not reauthorized SBA as a federal agency in more than two decades.

SBA is a “limited” direct lender.

The SBA doesn’t have sufficient experience as a “lender” to manage the tremendous volume of COVID-19 EIDLs that need to be repaid: 4 MILLON.

Prior to the pandemic, between fiscal 2018 and 2022, the SBA approved an average of approximately 26,284 applications per YEAR for natural disasters acting as a “direct lender.”  That number includes natural disaster loans for physical damage to small businesses, homeowners and renters.

Making natural disaster loans remains a small part of the overall SBA mission.

SBA made small business natural disaster loans on average less than 10,000 a year between 2018 and 2022.

Source: GAO Report To Congress: Disaster Loans

Quote from SBA’s recent press release on Fiscal Year 2023: $670 million in disaster assistance for small businesses: Throughout the year, the SBA stepped up in moments of crisis to deliver critical support to business owners and communities in need. FY23 saw $670 million in relief delivered to more than 5,200 businesses across America.

Source: SBA Press Release 23-90

SBA’s Mission as defined by Congress: The United States Small Business Administration aka SBA was created by an act of Congress in 1953. The legislation acknowledged the lack of working capital available to small business owners, notably women, African Americans, Hispanic Americans, Native Americans and Veterans of the armed forces.  

The legislation included the natural disaster loan component, but that was far from the primary mission of the newly-formed federal agency.

Mostly what SBA does to perform it’s mission is to provide guarantees to commercial lenders for SBA loan products, and secondarily to provide support to small business in the form of education, grants, and advice. Note the commercial lenders make the SBA guaranteed loans using the lenders’ funds, not SBA funds. SBA’s role is to make the lender “whole” in the event of a defaulted loan.

Source: Small Business Act

People are talking about filing a class-action lawsuit.

As for lawsuits, like our opinion on EIDL Forgiveness, this is a waste of time to consider, reflect on, talk about.

As of this writing SBA clearly states that COVID-19 EIDLs are not forgivable. Our opinion, based on our extensive research on this topic, is that these loans will never be forgiven.  (We hope to be wrong)

Suing the SBA is, in our opinion, similarly fantastical magical thinking.

A group of business people sued SBA during the pandemic in response to the Restaurant Relief Fund program.  These business owners claimed that SBA’s direction of funding to “priority” groups from traditionally underserved communities was unconstitutional. The lawsuit caused the program to cease assisting restaurants all across the country as SBA halted the grants in response.  

And the lawsuit was ultimately tossed out of court. A. Complete. Waste. Of. Time.

Source: Lawsuit

Whether you are struggling with repaying your COVID-19 EIDL, or if your business has already failed, or you are managing (or soon to begin) repayment, we recommend the following strategy: Focus on the things you can control and avoid the magical thinking of inexpert people who post random nonsense on the internet because they want it to be true.

Small Business Owners can control the following:

  • Make payments

  • Check your MySBA portal weekly, especially for “messages”

  • Comply with the requirements of the EIDL Loan Agreement

  • Apply the requisite responsible diligence to this loan program to avoid problems

We offer the following assistance to Small Business Owners with COVID-19 EIDLs:

These are the options for assistance we can provide:

  • COVID-19 EIDL General Consulting: we assist with various requirements and procedures under the terms of the EIDL Loan Agreement including change of ownership, sale of assets, lien release requests, assumptions, and more. Email Curious@

  • YouTube videos: we have over 500 videos to help Small Business Owners manage the SBA’s EIDL program’s various aspects

One-Hour Consulting Call

We offer a one-hour consulting call for $275.00. On the call Trevor will review with you different aspects of your COVID-19 EIDL or, if your loan defaulted and went to US Treasury for collection, he will discuss options at this stage where your EIDL is with US Treasury:

  • Dispute

  • Negotiating an Offer in Compromise

  • Repayment plan

  • Closing the business

  • Bankruptcy

  • Long-term consequences of a defaulted EIDL

IF you still wish to book a call, CLICK HERE

US Treasury Defaulted COVID-19 EIDLs: DISPUTE

Since late December, 2023, SBA transferred massive numbers of COVID-19 EIDLs to US Treasury for COLLECTIONS. EVEN IF the Borrower was making payments and communicating with SBA about their difficulties in making full payments. This is a DISGRACE and we blame SBA’s dysfunctional systems for not providing more effective repayment strategies for people trying to repay their loans.

Is your COVID-19 EIDL transferred to US Treasury? If so, you should immediately submit a dispute to fight this egregious harm to small businesses in America.

Our US Treasury DISPUTE Consulting service is available for a limited time for $825.00.

  • Fact Collection Phone interview about repayment challenges

  • Collection of business documents to accurately complete dispute forms

  • Completion of US Treasury dispute form

  • Signature protocols

  • A completed package with supporting documents for your dispute

  • Instructions to submit your dispute

  • Ongoing strategies to dispute the default with SBA included in the package

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Fear-Mongering For Free

We’ve had people accuse us of trying to frighten business owners about the consequences of failing to comply with the terms of or failing to repay their COVID-19 EIDLs.

These folks, in our opinion, are getting their fake-expert-opinion-troll advice from a crowdsourced knowledge base. 

That’s where a bunch of people get together on a chat and discuss their thoughts, actions, and results, on any given topic, and in this case, it’s the COVID-19 SBA EIDL Program.

While those forums can be an excellent starting point on a journey to research and learn, one should discern that when it comes to a complicated topic, the crowdsourced knowledge base, taken as their only source of expertise, is a disaster in the making.  

Especially when it comes to the SBA and the COVID-19 EIDL program.

You have to take the information you gather from online forums and then seek out actual experts before you make final decisions on any given action. 

You’re not simply gathering other people’s opinions to decide if a pizza restaurant is up to the standards you expect because you’re a person who loves pizza and you want only the best pizza!

We learned how the SBA’s COVID-19 EIDL program works by working on hundreds of actual files, and speaking to hundreds of SBA Agents and thousands of Small Business Owners. 

Before COVID, we both worked in financial services. That’s where we get our expertise and our expert opinions due to prior experience with financial services processes and products.

Some folks interpret our approach as trying to frighten business owners to sell our products and services. 

There’s so much wrong with that. First, we’re trying to warn business owners that there are serious restrictions and important responsibilities they need to be mindful of. If ignored, there are consequences.

Second, are these people business owners? Logically, they must be because the COVID-19 EIDL program was for business owners to survive the lockdown during the first global pandemic in our lifetime.

If that’s the case, did they go into business to not make money? That’s absurd.

Our vocal efforts are to warn folks to not listen to bad crowdsourced advice which is to give up, walk away, and not pay the loans if their business is in trouble. 

With this cavalier approach, costly consequences are possible.

We don’t do this because we’re “hucksters” and “shills” based on the opinion of two people accusing us of this activity. 

We do this because we have business owners contacting us EVERY SINGLE DAY with their worries and anxieties. 

These folks can be worried about something very simple, such as changing the address of the business or spending the remainder of the EIDL funds. They seek sound, trustworthy guidance to know they won’t be in trouble with the SBA or the government.

During the pandemic, we heard from a couple of business owners who hired us or asked for our advice and they said, 

“I don’t want to screw this up and get in trouble.”

Trevor was a mortgage banker. He’s had similar experiences with trends in the mortgage business, whether it’s the rise of sub-prime mortgages, or people taking advantage of federal programs to save their homes when they didn’t need saving, and more. 

If you look back at his mortgage blog going back nearly twenty years, you’ll see he’s offering the same warnings about trends and bad advice.

Is it a bad thing that we care passionately about Small Business? So be it. We’re okay with that. We’ve met some incredible people along the way that we truly admire. 

However, our passion has given fuel to trolls and haters because sometimes our passion comes off as aggressive and arrogant. It’s because we know what needs to be done and we’ve seen the bad advice and costly mistakes as a result.

We created our comprehensive expert guidebook the Post-Closing EIDL Blueprint for those business owners who care about consequences and as a way to budget cash flow instead of costly consulting hours to get the job done. 

We created it because we KNEW these questions, these challenges, and these worries would come up.  We knew we would only be around to provide direct advice for a short time because we are building other businesses.

When we warn folks and it sounds like “danger,” it’s with the hope that people will hear our message to be careful with their responsibilities under the loan agreement and repayment. 

  • Do we value our expert backgrounds? Yes.
  • Do we feel that we deliver value? Yes.
  • Did we go into business to NOT earn a living. No!

We decided to sell our experience and processes that we know work. It’s no different than a marketing expert getting paid to share their experience and knowledge.

Take the information you gather from the crowd, coalesce that information into basic answers to your questions, and then seek out a professional expert to give you more information. 

If you take that course of action, you will dramatically improve the odds of making the best possible decision for you and your business.

When you’re done, treat yourself to a nice pizza, because…who doesn’t love PIZZA!!?

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Are LLCs Immune from COVID-19 EIDL Debt Collection?

 

We received the under-noted comment/questions on one of our YouTube videos. Both our video and this comment serve to demonstrate the continuing dysfunction of the United States Small Business Administration (SBA), especially with its terrible communications and procedures.

Question: Are you speaking on EIDL loans granted to LLCs? Isn’t the whole point of an LLC to limit liability? How can SBA go after anyone personally if the LLC entity that took out the loan is dead and no personal guarantee was made? I think it’s important to differentiate between these nuances in these discussions.

Our Response: Thank you for your most excellent observation!  You are absolutely correct on your two key points:

  1. The LLC should protect the “corporate veil” concept, and SBA acknowledged that fact in a written memo to Congress last autumn.  BUT…BUT…BUT…once these loans go to collection at the US Treasury and the IRS attempts to collect on the debts, will the IRS also honor the corporate veil?  Technically they should, but the purpose of our discussion in our videos is to warn people to expect the unexpected because this COVID-19 EIDL Collection process is new and developing literally day-by-day.
  2. Yes, you are correct there should be more clarity about these nuances, but there is NONE from SBA. ZERO. NADA. ZILCH. As for our part in these discussions, we are only observers attempting to assist Small Business Owners in understanding the possible consequences and ramifications of failing to pay their COVID-19 EIDLs, especially since our message is focused on countering the internet opinion trolls who would have everyone believe they can simply walk away from these loans with no consequences.

We started working with the COVID-19 EIDL program in March 2020 as the pandemic started to unfold.  From the outset, we discovered, as seasoned financial services professionals, how badly SBA communicated information about the COVID-19 EIDL program.

These failures in communication cover the breadth of platforms: SBA website, FAQs, legal documents, applications, even simple sentences embedded in SBA forms and website information.  Then there is the consistent failure of SBA to properly train and educate its representatives.  We have an old saying here at Aurora Consulting: “Ask the SAME question of 7 different SBA Agents, get 13 different answers.”

We’re seeing these terrible communications come to a chaotic climax with the many small businesses struggling to repay the COVID-19 EIDls.  Whether a business is attempting to repay the loan by requesting accommodation for reduced payments, or the simple exercise of setting up the initial payment profile on the SBA website, confusion rules the day.

In December of 2023 and so far this month, January of 2024, SBA appears to be “bulk” shipping defaulted COVID-19 EIDLs to US Treasury for collection actions.

Even loans where small business owners made payments have been shipped off for collection.

And, again, there is no communication from SBA.

Worse, if a loan has been sent to US Treasury and the small business owner wants to make a lump sum payment to bring the loan current, or, worse, if they have recently made the lump sum payment to SBA only to receive a notice from US Treasury for collection, when you call SBA they hew to a scripted standard line: “You will have to ask US Treasury.”

The failed communications extends to US Treasury. IF you can get a representative on the phone, you are told to contact SBA about making the payment to bring the loan current.

THIS is an absolute nightmare.  If the SBA were a commercial lender subject to the laws and regulations of federal banking codes, they would probably come under investigation by the Justice Department or State banking authorities for these egregious behaviors.

We will update small business owners as this situation unfolds with the real-time real-world experience we garner from working with small business owners and the SBA.

We offer a one-hour consulting call with our Resident Retired Loan Officer, Trevor, to help small business owners understand their situations and recommend next steps in their repayment or default strategies.

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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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