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

AI IMAGE of a group of startled folks in a town hall meeting

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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Visit our Videos on COVID-19 EIDL Updates

Our opinions are our own. For videos on EIDL Updates, visit our YouTube playlist.

1. SBA is definitely working faster on files. We’re seeing recent Reconsiderations getting a response in thirty days or less. The response typically requests additional documents; the response isn’t necessarily an approval.

2. Once documents are submitted. SBA’s typical dysfunction kicks in and there’s silence on the file, no status updates available, NO approvals, and, too often, DECLINATIONS.

3. DECLINATIONS. We’re seeing that SBA fails time and again to actually read documents submitted for the Reconsideration process, including failure to read SBA’s OWN specialized forms (SBA Form 3501 and 3502). Also a failure to thoroughly review tax returns.

4. DECLINATIONS II. There’s a spate of declines over the past several days. Feels like SBA is “clearing the decks” again and sweeping older files over the starboard bow.

5. OLDER Reconsiderations. It’s an absolute disgrace with the lack of activity on these files. When SBA actually works on the file, there are repetitive requests for the same documents, and failure to read the documents submitted and move the file forward.

6. Once a Loan Officer signs off.  When a file is marked for approval based on the loan officer’s review, there’s a secondary review level (including legal team as far as our understanding). This secondary review seems to take weeks and there’s no response or status update in the meantime.

7. Uploading documents to SBA portal.  This is a constant nightmare: documents do not register in the system or are marked as “incorrect” when they aren’t.

8. $2M Increase requests. So far, it’s easy to request; we’ve submitted several.

9. Funding problems. Once a file is approved and the primary “authorized signor” DocuSigns the Loan Agreement, there have been delays in receiving the funds. We solved the mystery yesterday when we discovered the SBA is emailing the Loan Agreements to ALL other owners with a 20% or greater ownership interest, but the emails often go to SPAM and the primary signor is UNAWARE of this because there’s no mention (or functionality) on the SBA portal.

10. INCREASE BACKLOG. SBA has NOT cleared the backlog. We still have dozens of Client increase requests languishing in the SBA system with NO activity since APRIL.

Grab it NOW

How to Apply for an EIDL Loan

An updated sample of the EIDL application with Trevor's commentary on what changes the SBA has implemented when underwriting your EIDL loan.

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.