Lenders Concerned About EIDL Loan Conditions?

​An op-ed from SBA North Dakota District Director Al Haut addresses concerns raised by lenders regarding borrower impacts. 

OP-ED: SBA EIDL Borrowers – Take note! by Al Haut, SBA North Dakota District Director
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The Small Business Administration approved 6,552 COVID-19 Economic Injury Disaster Loans (EIDL) in North Dakota totaling over $745 million. 

Recently, I have heard several remarks about these loans. The EIDL program is designed to provide small businesses with working capital needed to overcome the negative financial impacts of a declared disaster. Traditionally disasters include weather events, such as tornados, flooding, or drought, or earthquakes. Occasionally, catastrophic events such 9/11 and this pandemic have caused such an economic hardship that led to a disaster declaration.

The operative word is loans. The EIDL program is a loan program with a 30-year maturity and an interest rate of 3.75% for most borrowers. Under the COVID disaster declaration, the EIDL loan payments are deferred for two (2) years with principal and interest payments required over the remaining 28 years. SBA began approving COVID EIDL applications in March 2020. For those early loans, we are rapidly approaching the end of the deferment period in which payments will start. Business owners should start preparing to make those payments.

Borrowers should review their loan authorization to ensure they are following certain provisions. For loans above $25,000, SBA filed a lien on the business assets. If a business owner wants to sell a piece of equipment or the business itself, SBA will need to approve the release of its lien.  In some cases, this may require a cash payment to reduce the loan balance. These requests are approved by one of SBA’s disaster loan centers and borrowers should be prepared to make their request well in-advance of the actual sale. 

Please note, SBA does not require farm products such as agricultural commodities, crops, and/or livestock to serve as collateral on COVID-19 EIDL Loans.  Lenders can also help process the requests for releases/subordinations on behalf of their customers if they include a signed release/consent to do so.

Another provision is eligible use of proceeds which includes working capital to make regular payments for operating expenses, including payroll, rent/mortgage, utilities, and other ordinary business expenses. Proceeds can be used to make current business debt payments and future monthly payments. However, it cannot be used to pay off or refinance existing debt. 

Other conditions to note for loans above $200,000, SBA required personal guarantees of the owners obligating them to pay the loan if the business doesn’t. On loans above $500,000, SBA required a mortgage on commercial property.

EIDL borrowers in Minnesota should contact SBA’s servicing center in Birmingham (800-736-6048) and borrowers in North Dakota should contact the servicing center in El Paso (800-487-6019).

Alan Haut is the SBA’s North Dakota district director based in Fargo. He oversees the agency’s programs and services across the entire state.

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