AmiSight 12/16: Should a Borrower Pay Off Their EIDL Loan?

The short answer is: sometimes, yes—it can make sense.

I spoke with a client this week who has a $350,000 EIDL loan on his business. As many borrowers know, an EIDL of that size means the SBA has a lien on the company. That lien creates a very real constraint: if the business needs new financing, the borrower must obtain the SBA's subordination.

In theory, that’s manageable. In practice, SBA subordinations are becoming increasingly difficult and time-consuming to obtain, and in this client’s case, the business needs new capital now.

Here’s where the analysis changed.

This borrower has significant real estate equity. Rather than waiting on an SBA subordination that might never come, I suggested he consider taking a loan against the real estate and using those proceeds to pay off the EIDL loan in full. By doing so, he would release the SBA lien allowing the company to proceed with the financing it needs.

This is not the right solution for everyone. Not all borrowers have available real estate equity, and for many, the EIDL’s favorable terms still make it a smart loan to keep. But if you can refinance the EIDL outside the business, it may be worth considering—especially if the SBA lien is standing in the way of growth or access to new loans.

As with most financing decisions, the right answer depends on the borrower’s full balance sheet, goals, and timing. But in certain situations, paying off an EIDL isn’t just about removing debt—it’s about removing friction.

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