How do I get the SBA to release an EIDL lien to sell business assets?

Old EIDL Liens

The CARES Act made pandemic-devastated companies eligible for Economic Injury Disaster Loans, which could have terms as long as 30 years. Depending on loan size, SBA usually took pledges of personal property or mortgages on business real estate and required the borrowers or owners to sign personal guarantees. The liens attached to these properties by the SBA are generally perfected by the filing of a so-called UCC-1, or a Uniform Commercial Code Article 9 financing statement. Similarly, SBA will record the real estate mortgage, where there is one.

But those old EIDL liens now trouble struggling businesses seeking a buyer for some of the assets free and clear of liens, especially if that buyer is getting a bargain and wants clear title. New buyers want assets and collateral that are free of EIDL liens, even if the sale price is lower than the loan amount. This leaves the business holding assets covered by liens - primarily UCCs and mortgage liens - attached by the SBA under the EIDL program. That requires the owner, or someone acting for the business, to find one or more of several legal strategies to unchain those assets. The business can talk with its lawyer about multiple options, such as (1) a section 363 sale in bankruptcy, (2) a receivership or an Assignment for the Benefit of Creditors, under state law, or (3) see if the senior lender to that property will acquiesce in a foreclosure sale, which will clear junior liens from those assets. A fourth option is to try to work out an amicable resolution with the SBA so they agree to eliminate the lien. The SBA itself suggests this last route.

Which route will work best will depend heavily on timing, whether creditors cooperate and if any borrower or company owner wants to keep it quiet. A company whose assets are a melting ice cube may need a fast close. But complete analysis of which route beats others in your situation is beyond this post. Still, the SBA release route deserves a look.

The Lien Release Request

The SBA gives pretty complete instructions on its “Manage your EIDL” web page, and you should follow its instructions closely. Among other things, the borrower or guarantor has to send it a heavy stack of documents, which you see below.

• A detailed letter from the borrower or guarantor explaining the reason for the lien release request.
• A copy of a signed closing or deal document, for example a sales contract, bill of sale, or closing statement.
• A copy of the business’s federal tax returns for the last two years.
• A current UCC lien search confirming the SBA’s lien priority.
• Title report for real estate transactions.
• Payoff letters from the holders of the liens senior to the SBA, if applicable.
• If you plan to close your business after the sale, a copy of dissolution documents or final tax returns.
• Documentation that the business has the necessary insurance required by the Loan Authorization and Agreement.

SBA says it answers within 15 business days after receiving a complete package. Any request for more information can effectively restart that clock. Do things in the right order, and start as soon as you know a sale is in the works.

SBA has three loan-servicing centers, Birmingham, Alabama; El Paso, Texas and a national center in Santa Ana, California. To begin the lien release request, send the package to a general inbox at the center that handles your loan. Servicing used to have no assigned person, so replies were random. Things have improved: once a request has started, there is usually one point of contact, and things are happening somewhat faster than a year or more ago.

Close of Business and Dissolution, or Settlement of a Personal Guaranty

The lien release does not address the close of business and dissolution, or settlement of a personal guaranty. If you intend to close the doors, there is a separate protocol and process for that. Guarantors need their own separate settlement with SBA on personal liability.

SBA’s lien release process is not perfect. But it helps where bankruptcy, state receivership or friendly foreclosures fail.