It is essential for borrowers, their financial consultants, and lenders to understand the servicing of the Small Business Administration (SBA) Economic Injury Disaster Loan (EIDL). But, the SBA may or may not do what you need. This article covers the general terms of EIDL loans and how servicing works.
For these loans, the fixed rate is 3.75% for businesses and 2.75% for private non-profits.
There is also a guaranty requirement for the for-profit businesses taking out more than $200,000 in loans, which does not apply to non-profits, or loans to ESOPs.
COVID EIDL Servicing Center (CESC)
The SBA will manage COVID EIDL loans through its COVID EIDL Servicing Center (CESC). A single point of contact for borrowers, CESC has more than 1,700 employees, as of 1/24/24. Call 833-853-5638 or email: CovidEIDLServicing@sba.gov.
The most common servicing requests are:
- Subordinating liens.
- Assumptions or ownership changes.
- Hardship requests.
- Re-amortization.
- Collateral releases or substitution.
- Refunds and payoff requests.
- Mortgage verifications.
- Liquidations.
To start a request, the borrower or lender sends an email to the CESC describing what action they want to take. An intake team at the center will respond with the correct application forms within 24 hours, sometimes the same day. The application forms are not publicly available, although the SBA is working to put them on the MySBA Loan Portal.
Chances of Approval for a Given Servicing Request
What are the chances of approval for a given servicing request? It depends on the request and the facts behind it. First, you have to be current on payments. There are no exceptions here. If you do pass the first hurdle, here is how the usual requests fare.
The SBA usually subordinates its lien on the COVID EIDL with no cash required for the borrower to get a further SBA loan like a 7(a), 504, or SBA Express loan.
The SBA says it typically grants routine subordinations, where the borrower wants to refinance a senior existing obligation, or to create a line of credit for normal business purposes, without any paydown.
Subordinations for factoring, or for purchase money (PMSI) financing on machinery and equipment, are usually approved too, with no paydown.
A paydown is required if the subordination is for cash out, refinancing junior debt, business expansion, or buyouts/buy-ins, because EIDL was to provide operational disaster relief, not expansion.
The SBA may require the COVID EIDL to be paid off in full, depending on the facts of the request.
Ownership changes are typically allowed in cases of hardship, a family transfer, or a simple change of entity structure. Any other ownership change would typically require a partial or full payoff of the EIDL first. The applicant may propose a paydown to the SBA but the SBA must agree.
In case of a short sale or business closeout, the borrower should contact CESC by phone or email.
The SBA typically allows trade-ins without a cash paydown. You can also sell your equipment to a third party, and may not have to pay down any COVID EIDL, as long as you can demonstrate hardship and plan to use the proceeds for working capital.
If the business is being sold, and all collateral is being let out of lien, the COVID EIDL must be paid in full.
As for timing, a subordination request is reviewed within one to two business days. If approved, documents are prepared in three to five days.
For assumptions/ownership changes the request is reviewed in two to three business days. If it is approved, the documents will be prepared in about two to four weeks.
For partial collateral releases, the request will be reviewed in two to three business days. If approved, documents can be prepared in about two weeks.
For hardship requests, the borrower will receive a response in one to two business days. If the request is approved, the documents will be prepared in three to five days.
A refund and payoff request could be processed in one to two business days. A mortgage verification also takes one to two business days.
Some of the common reasons why processing can be delayed are:
- You did not fill out the application correctly.
- Your package is incomplete. That means, for instance, forms are missing or supporting paperwork is not submitted.
- Forms are not signed.
- There are mistakes in the original loan application.
- Ownership changed after the application and never got approved.
As for repayment, EIDL payments were put off for 30 months starting from the date of the note. However, interest continued to accrue during this time.
The deferment periods on the loans began to end in October 2022. COVID EIDL loans are not eligible for forgiveness.
SBA’s MySBA Loan Portal was launched on 2/21/23. It allows borrowers to view loan details, make payments, and get statements. The portal covers the COVID-19 EIDL, disaster loans, and SBA-serviced 7(a) loans.
Plan ahead. Don’t assume that the SBA will approve your request. The SBA could ask for a paydown or full payoff. Start your request as early as possible. Be specific, and include as much detail as possible. The more precise and accurate you are, the easier it will be to process your request.
About Delancey Street
Delancey Street is a premier, and award winning, business debt settlement company that helps business owners nationwide. Our goal is simple: help you escape debt in a safe and legal manner. Based out of New York, we can help in 49 of 50 states. We tell you how it is; because your business and future is on the line.
