AmiSight 1/5: EIDL Loans are an IOU to the U.S. Government
Last month, the Wall Street Journal published an article titled "Pandemic Loans Are Coming Due, But Some Businesses Aren't Ready to Repay." As those payments come due, some business owners argue that they did not understand the terms of the loans and that as the economy weakens, they are not well positioned to repay the loans. Business owners must understand that these loans are an IOU to the U.S. government.
Borrowers need to realize that the time may come when they need to borrow money again. If their business still has a balance on its EIDL loan, the day of reckoning will have arrived. Under the terms of the EIDL loan, the SBA has a lien on the business, and the new lender will require the SBA to subordinate that lien before issuing a new loan. So the first line of questioning will come from the new lender: What did you do with your EIDL money? Did you use it for authorized purposes? If not, that will raise a character issue that could endanger the new loan. If you get through these questions, next up will be the SBA officer who has to approve the subordination request.
My advice to those with an EIDL loan is to make a plan. If you used the money for legitimate purposes and your business was hit hard by COVID-19, you don't have much to worry about. But if that’s not the case, clean up your balance sheet and be prepared for the next time you might need to borrow money. Then, by all means, start to make those payments.
Please read the full article I published on 21hats this morning on this topic.