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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.