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.

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.

Ambiguity and Uncertainty

Ambiguity and uncertainty are not words that Small Business owners embrace in their daily vocabulary. Even fishing professionals, sailing the chilly vastness of the North Atlantic in search of Cod, Haddock and Mackerel, don’t use those words. They set out on their fishing forays with a sense that they will find fish using their experience and knowledge, helped along by some modern technology.

Call the SBA with a question that requires a definitive answer, though, and you get an uncertain or ambiguous answer. Call multiple SBA representatives with the same question and get multiple answers.

Small Business owners have come to rely on the SBA during the COVID-19 pandemic to provide a vital financial lifeline to keep their businesses alive as they struggle with the various challenges of the pandemic disaster. When a Small Business owner asks questions, whether they’re general questions about the EIDL process, or specific questions about the Small Business’ EIDL application, they expect specific and hopefully detailed answers.

Question to the SBA: “Now that the loan will be declined for Reconsideration because the IRS hasn’t processed the tax return, how long does the applicant have to file another Reconsideration?”

I don’t even remember what the answer was because it was so vague and ambiguous.

“Good morning SBA, what is the current turnaround time, on average, for EIDL Reconsiderations?” or
“Hello SBA, if I file a Reconsideration request today, how soon can I expect that my file will be assigned to a Loan Officer at the Reconsideration team?”

The Small Business owner cannot get reasonable or certain answers to these questions.

Trevor worked in retail electronics in the 1980’s in customer service. When a customer brought a VCR or stereo system in for repair, he could provide the customer with a reasonable expectation for turnaround time for their repair. Even if they had to order parts for the device to repair it, they could know within a reasonable range of time, when those parts were due to arrive and when the technician could be expected to complete the repair.

They knew the repair intake process, the repair tech servicing queue, the quality control check process, and even when the product was on the truck for delivery back to the store for customer pickup. And this was with electronics repairs where anything could happen with the electronic device once it was on the repair bench and the tech tried to solve the repair problem.

Customers had a reasonable expectation to receive unambiguous information about the repair process.

“Hi there SBA! Can you please give me a status on my EIDL Reconsideration file?”
The Answer most often: “In process.”

What does that mean? Where in the process is the file? Has a Loan Officer reviewed the tax returns, read the transcripts from the IRS, etc.???

As a Mortgage Banker, Trevor knew every step of the way where the Applicant’s file was in the loan process: appraisal on order, appraisal received, verifications received, submitted to Underwriting, quality control review, clear for closing, and etcetera and etcetera.

While writing this blog, one of our clients for Reconsideration sent me a text message,
“This is like the old Heinze ketchup commercial, ‘Anticipation, it’s making me wait.’ Guessing no news is good news?”

When a Small Business owner begins their business day, they do so with a clear understanding of how their business operates, what they have to do to achieve their business goals, and their certainty in their methods for success. When they run up against the constant lack of clarity and certainty with their urgent EIDL financing requests at the SBA, their COVID crisis anxiety increases exponentially.

This is unacceptable.

The Small Business Administration, in its mission to advocate for Small Business, needs to do a spectacularly better job of providing clarity and specificity and to remove ambiguity and uncertainty from the process.

3 Confusing Errors with the SBA

1. Was your EIDL Loan Declined for “Unverifiable Information?”

We’ve seen the latest SBA reaction to new EIDL applications and EIDL Reconsiderations: They decline the loan due to unverifiable information. Based on conversations we’ve had with SBA personnel and documents we’ve submitted, this appears to be mostly the SBA’s way of preventing fraud on these loans by requesting additional levels of documentation, essentially to prove it’s a real and legitimate business and not a fake farm in Maine.

Your best course of action follows the advice we continually give: Be patient and persistent with the process. We know you’re desperate for the money and in our professional opinion, SBA is overreacting to fraud by making all the legitimate businesses jump through hoops to get this desperately needed funding.

Be prepared to submit the following:

  • 2019 tax return
  • Signed IRS 4506T
  • SBA Form 2202 Schedule of Liabilities
  • Driver’s License
  • VOIDED check

Be prepared for other possible verifiable information about your business such as:

  • Articles of Formation
  • Proof of filing your EIN with the IRS or DBA certificates or other registrations with your town, city, county or State
2. How to submit your Driver’s License to the SBA for your EIDL loan or Reconsideration

Since December, we’re seeing more and more that SBA Loan Officers are requesting an image of your Driver’s License by way of an actual smartphone photo that you snap and email directly to the Loan Officer. In other words, they won’t accept a PDF. As with our other video about “unverifiable information” this appears to be yet another level of fraud prevention on the part of SBA to confirm that you are a legitimate and real person.

3. Wet Signatures and your SBA EIDL Reconsideration

More and more since February, on the many Reconsiderations we’re working on, the SBA loan officers are requesting an ink or “wet” signature on forms and documents you submit. In other words, they’re not accepting electronic signatures. For the average Small Business Owner, this might not be much of a hassle, unless you don’t have access to a printer and scanner.

Many folks these days don’t. It’s certainly inconvenient for our process at Aurora Consulting since we’re busy assisting our clients on their Reconsiderations and preparing their documents and sending to them for electronic signatures so they can keep running their business to keep their business alive during the pandemic.

As we have always stated in our documents submission videos for the SBA Reconsiderations: Be sure you sign and date your forms and now, more than ever, sign with a pen, scan it and submit it.

Information keeps changing because procedures keep changing.

Tracking Receipts for Your EIDL Funding

The question posed by an anxious Small Business Owner: “Do we have to turn in receipts for everything we spend on the advanced GRANT? If I get it, I’m scared to make sure I document everything properly that I need to. How are you spending yours? I’m unsure where I can use it and what’s off limits.

Even though the “Advance” technically doesn’t have to be repaid, it’s still considered part of the EIDL program by SBA.

Therefore, in common sense terms you should keep records and receipts. In general business terms: Why would you NOT keep records and receipts? These are tax deductible items after all since they’re expenses against your business income. AND…tracking income and expenses is an essential monitoring tool to grow a business.

How can you know if you’re earning and growing if you’re not tracking income and expenses?
These are the reasons why it makes perfect business sense to track receipts and to keep good records.

Our opinion: There’s been so much confusion around these programs, mostly due to SBA’s terrible messaging and lack of clarity on these very questions. It’s disgraceful that we all have to hunt around the internet to collect “anecdotal” evidence from other Small Business Ownres to educate ourselves about the important fine points of these programs.

There should be a simple to read guide on the SBA website that anticipates and answers these questions.

We’ve had clients telling me since last April how they’re “terrified” of using their EIDL monies incorrectly. That’s an absolute shame.

In the early days we were more forgiving of SBA’s failures because, well, it was COVID and EVERYONE EVERYWHERE was overwhelmed. But a year into this thing you’d think SBA would have gotten its act together, especially in the light of their allocating SBA staff to contacting EIDL Borrowers for “Resolution Letters” and “Hazard Insurance” (good luck getting a definition of what that’s supposed to be!).

How about, instead of wasting tax dollars on staff salaries for that nonsense SBA allocated those folks to processing the loans? Or that they invested tax payers’ money on creating online materials that’s accessible to every Borrower and interested prospective Borrower with clear, detailed information on the EIDL and PPP programs?

Short answer: The terms of the EIDL Agreement are clear: receipts and records can be requested by SBA in the future.

Seriously, if we ran our respective businesses this way, we’d be OUT of business.

YOU Tell the Bank the Amount of Your PPP Loan

Disqualified? Thank you Politicians!

The Second Round PPP loan and the Targeted EIDL Advance both require businesses to prove their revenue reduced in 2020 from 2019 levels. But many businesses created a smart, creative “Pandemic Pivot” and their revenues are either the same as 2019 or maybe higher. Thus, they are disqualified!

We’re going to see a lot of folks have this problem. Frankly, we’re mad angry at the entire “25% and 30% reduction in revenue” required under the Second PPP and this targeted advance. It was a political compromise for the morons in government who didn’t want to step up and provide proper assistance to American Small Business Owners.

Why should you, or any other Small Business Owner be disqualified from a much-needed program simply because you were smart enough and creative enough to “pivot?”

That doesn’t take away the fact that COVID is ONGOING and the harm to your business—with or without a pivot—is ongoing.

It’s so ridiculous. And, yes, we’ve dedicated this to today’s “Trevor Rant Thursday!”

PPP Application: Who Underwrites The Loan Amount? THE BUSINESS OWNER DOES —> NOT THE BANK!

FYI: the banks, the loan officers, they are NOT supposed to re-underwrite your PPP loan application! They are simply supposed to verify you have submitted all pertinent documentation. Period. This is a common misconception!

The PPP program is a “self-certification” program, including calculating the math to arrive at the loan amount on the application.

Banks make us nuts in oh so many ways.

Reconsideration Step by Step

Please find below our point by point recommendations on how to to submit your Reconsideration request to SBA:

  • NEVER file a 2nd application. You must only submit a Reconsideration request.
  • Send an email to PDCRecons@sba.gov with your request
  • In the SUBJECT LINE put: “Reconsideration: EIDL #XXXXXXXX
  • In the body of the email state simply:
    I hereby request a Reconsideration of my EIDL Loan #XXXXX.  Please find attached the following documents:”
    (
    LIST YOUR DOCUMENTS)

Documents to include:

  • Credit Authorization letter (see below)
  • Credit Explanation letter (see below)
  • IRS 4506T
  • SBA Form 2202 Schedule of Liabilities
  • Business Plan summary (see below)
  • Business Revenue Projection (see below)
  • VOIDED check
  • 2019 Federal tax return (all pages)
  • 2020 DRAFT tax return (all pages; indicate DRAFT)
  • Clear, color scan of front and back of Driver’s License

Your Reconsideration letter should be SUPER SIMPLE. Don’t overload the Loan Officer with details of your struggle.
Keep your explanation to a few concise sentences, such as:
My business was a new enterprise. We were beginning to produce and sell product when COVID-19 caused a severe economic injury.  We have pivoted our Business Plan to adapt to the challenging circumstances of the pandemic (see attached Business Plan Summary and Revenue Projection). We need assistance from the SBA EIDL program to help us to move forward and survive the pandemic. If we do not receive this assistance we will likely fail as a business. If we fail, our employees will be out of work and our business will no longer contribute to the fabric of the American economic community.

  • CREDIT AUTHORIZATION wording: “I hereby authorize SBA to obtain an updated credit report for my EIDL Reconsideration.
  • CREDIT EXPLANATION: Do not discuss your credit score.  Simply address the challenges in life and/or business that affected your ability to pay credit accounts on time.  For example: “In early 2019 I experienced severe financial crisis due to (DIVORCE/MEDICAL/JOB LOSS/ETC).  I have worked to improve my credit.
    KEEP your explanation short, and concise. The Loan Officer will not “judge” you; they simply require an acknowledgment  of your previous credit history problems.
  • Business Plan Summary: Keep it concise and explain the changes you made to adapt to the pandemic and how your business will succeed with these same challenges over the coming 12-24 months.
  • Business Revenue Projections: Broken down by Quarter with annual totals for the next 12 months.
  • SBA Form 2202

Be sure to include on EACH explanation letter your full name, Business name, Business address, EIN and EIDL #.

Sign and date EACH document, including tax returns. WET signatures are preferred.

Next steps after submitting:

After 5 calendar days, call SBA to confirm receipt. At that time SBA Agent might give you feedback on status, but probably too soon.
Be sure to check SPAM folder as SBA emails often wind up there
Be patient with the process. Timelines for Reconsiderations can be all over the map: days, or weeks, or months.  Patience and persistence are the key characteristics of success with SBA EIDL Reconsiderations.

I hope you find this information useful!  If this process seems overly complicated or onerous, our Consulting program covers all aspects of Disaster Relief Financing, including Reconsiderations, and PPP loans, State and Local Grants and any other Stimulus programs to help a business to survive this horrible disaster.

Calm, Cool Heads Collect During COVID

A word (or two, or more) of advice from a financing professional of 30+ years: We strongly recommend, before you act out of desperation and anxiety, please take a moment, slow down for a moment and take care of how you handle your decision-making process when applying for the second PPP loan and any other Disaster loans.  The money’s not going anywhere.

Back in April, we managed 25+ businesses for EIDL and PPP applications. We now have close to 100. At the time, when The CARES Act rolled out we waited before submitting applications. As a result, our clients received substantially more money than if we used the “math” and other guidelines in the first days of the roll out.

If you scroll any online groups specialized in disaster financing, you will see all the confusion among business owners about the program.  There’s no clear guidance on the SBA website.  There’s no clear guidance from Lenders/Banks no matter how good they relay their message.

We’ve had so many calls with one of our trusted lender resources about the placing of new PPP loans either with his bank or elsewhere. This is the professional who, last April, provided us with the final ACCURATE guidance on how to calculate PPP application numbers.

We like the Carpenter’s Rule: “Measure Twice, CUT Once.”

Take your time; take care with your applications.  Trevor followed this rule for his 30+ year career as a Mortgage Banker and it helped him to literally make Dreams come true for First Time Buyers.

For our part, we haven’t submitted a single Forgiveness application yet for our clients because we’re waiting for the new Legislation to kick in which guides Forgiveness NOT to subtract the EIDL Grants from the Forgiveness amounts.

We encourage you all in the strongest, most honorable and passionate and sympathetic terms possible: SLOW DOWN. Take your time and apply when you have all the facts.

We know that it is worth the wait.

Tax Refund vs. Eligible Income

With Tax Time soon approaching, we feel obligated to remind you of our continued advice about the best methods to prepare your tax returns if you plan on applying for Business Financing in the future.

With Trevor’s 30 years as a Mortgage Loan Officer, he saw this time and time again. While the tax professionals and CPAs might do a marvelous job of getting a Self-Employed Business Owner a GIANT REFUND (or simply lowering the tax bill) these folks never seem to have a discussion with their clients about the long term ramifications of such deductions/lowered income.

The “look back” period to qualify for a mortgage is 2 years; for a business loan of any type, it’s 3 years. That means the Lender will take those “Bottom line” numbers and average them for the time period in question (2 or 3 years) and create a qualifying income. When Schedule C shows a loss or minimal income over the time period, well, do the math. It ain’t pretty.

For a Self-Employed Borrower with a Schedule C (including many LLCs), lowering the net income on Line 31 by deducting oodles of expenses lowers the potential loan. IRS does not “require” anyone to deduct expenses; this is an “option” which helps to lower tax liability. BUT it also reduces a Borrower loan qualification by lowering income.

Whenever you complete a tax return you don’t have to deduct expenses! This feature of a tax return allows you to lower your tax liability.

BUT IT ALSO LOWERS YOUR INCOME.

And for any Loan you may request in future (up to three years later) the Lender will use that bottom line income to calculate your qualifications.
Take extreme care and think long term strategically before making a final decision on a tax return.

Be sure to watch our YouTube video about the “LOOK BACK” period!

Submitting documents to SBA

If you’re submitting documents to the SBA, you’ll  need to do it the RIGHT way to ensure a smooth process! Here’s our advice (based on Trevor processing loans for over 30 years) on the best way to submit documents:

1. PDF ONLY. No photos, no other file types. With the volume of documents and applications they’re working on, SBA Loan Officers simply do not have the time to convert your documents to PDF. They’ll probably set it aside until they have time.

2. Separate PDFs for separate documents. A PDF of a voided check should be separate from a PDF of a photo ID and etc. When SBA has to separate your documents from a single PDF it slows down your entire process.

3. Label the PDF on your end. For example of a labelled PDF: “COMPANY NAME YTD Income Statement JAN 1 to SEP 30 2020” or “COMPANY NAME Voided Check”

4. List the documents you’re submitting in the body of the email. For example, SUBJECT LINE: “Company Name: Documents submitted DATE”. Then, in the body of the email: “Attached to this email: YTD Income Statement JAN 1 to SEP 30 2020, Voided Check, Photo ID”

5. We recommend using the NOTES App on your iPhone to scan documents. Ridiculously easy.

6. BEST Scanning app of all: “ADOBE Scan” which you can download to your smartphone from your respective app store.

7. When scanning with your smartphone, keep the document within the scanning borders. Most often the scanning app will give you a highlighted “border” for the document.

8. Always scan documents on a flat surface and scan straight, not slightly tilted.

Watch our WTF Wednesday video where we discuss why these are important.

For a Smooth Ride

7 Tips to Submit Documents for Your EIDL Application

Grab these 7 tips to better prepare you on how to submit you documents to the SBA. You have to guide SBA to an approval. We've seen that they don't try to make it work if something is confusing or sloppy; they easily decline.