This summary outlines key points regarding COVID-19 Economic Injury Disaster Loan (EIDL) program for small businesses.

COVID-19 EIDL Servicing Center (CESC):

  • Established to manage all COVID-19 EIDLs.
  • Offers various services including processing payments, hardship accommodation requests, and collateral modifications.
  • Contact:
    • Phone: (833) 853-5638
    • Email: CovidEIDLServicing@sba.gov

MySBA Loan Portal:

  • Borrower web portal for managing COVID-19 EIDL loans.
  • Features include:
    • Viewing loan details
    • Making payments (one-time or recurring)
    • Accessing statements
    • Contacting SBA directly
    • Sign in the “MySBA Loan Portal” here: https://lending.sba.gov/

Default and Recovery:

  • Defaulted loans are subject to liquidation (selling assets to repay the loan) or charge-off (removing the loan from active management but borrower remains liable).
  • SBA may consider releasing liens on business assets for liquidation or distressed asset sales.
  • Bankruptcy filing may put loan collection efforts on hold.

The COVID-19 EIDL Servicing Center (CESC) processes various loan transactions including:

  • Loan modifications: This includes hardship accommodation (reduced payments for 6 months), re-amortization (recalculating monthly payments after a lump sum payment), and handling overpayments.
  • Verifications and requests: The CESC can verify mortgage information and provide payoff amounts.
  • Changes in loan ownership: This covers situations where another business assumes the loan, ownership of the borrower changes, or collateral needs to be substituted. The CESC has streamlined the process for these transactions.

The SBA has streamlined the process for businesses to modify the collateral requirements on their COVID-EIDL loans. This is helpful because businesses may need to use the collateral for other loans or business activities.

Here's a breakdown of the process:

  • Application: You need to submit an application with required documents to the COVID EIDL Servicing Center.
  • Subordination: SBA will generally subordinate its lien without requiring a paydown for certain reasons, like refinancing or obtaining a working capital line. However, a full payoff may be required for expansion or buyouts.
  • Lien Subordination: There are separate applications for real estate and non-real estate collateral. The borrower must be current on payments.
  • Release of Collateral: Similar to subordination, SBA has relaxed requirements for releasing collateral used in routine business transactions. Selling all collateral due to a business sale usually requires full loan payoff.
  • Substitution of Collateral: There are applications for substituting real estate and non-real estate collateral. The borrower must be current on payments.
  • Sale of Business or Assets: You need SBA consent for a change of ownership, which isn’t automatic. They may require a partial or full payoff before approving. Contact the Center for more info

When a business ownership changes or someone takes over the loan (assumes it), there's a specific process:

  • Application: The borrower submits an application (SBA Form 2526 for change of ownership, SBA Form 2525 for assumption) to the Center. Applicant must be current on payments.
  • Priority: This change of ownership process takes priority over subordination requests (where SBA allows another lender to have priority on the collateral). This ensures the SBA lien is on the right business.
  • Completion then Subordination: The change of ownership must be completed before the SBA can process a subordination request. If done incorrectly, it can delay processing by 30 days.

Hardship Accommodation Program (HAP)

  • Helps borrowers who can’t meet their monthly loan payments after the deferment period ends.
  • Borrowers with loans $200,000 or less can apply through the MySBA Portal.
  • Borrowers with loans over $200,000 need to contact the CESC via email for an application.
  • Up to 4 hardships can be requested, each lasting 6 months with reduced payments (10% to 75% of the monthly payment, minimum $25).

Processing Times

Subordinations and hardship accommodations generally have the fastest processing times (1-2 business days for initial review).

Loan Default and Recovery

  • There are different stages for defaulted loans: liquidation (trying to collect the debt), charge-off (removing the loan from active management), and referral to Treasury Offset Program (TOPS) for further collection efforts.
  • A charged-off loan doesn’t erase the borrower’s debt.

Business Closures & Distressed Asset Sales

  • If a business closes, the SBA will try to recover funds by selling the business assets (liquidation).
  • They will work with the borrower to figure out what assets are available, how much they’re worth, and create a plan to sell them.
  • For distressed asset sales (urgent sales), the SBA will follow a similar process but on a faster timeline.
  • If there are no assets or the borrower can’t repay, the SBA will charge off the remaining balance and potentially refer it to the Treasury Department for collection.

Bankruptcy

  • If the borrower or guarantor files for bankruptcy, the SBA will stop collection efforts while the bankruptcy case progresses.
  • The loan will be monitored by the SBA’s Legal department.
  • Depending on the type of bankruptcy and the court’s decision, the SBA may be able to collect some or all of the remaining balance.
  • The Loan Specialist will work with the borrower and the court to reach an agreement.

Validation Process

  • The SBA takes steps to validate an EIDL loan application (Validation 4363) which involve checking loan documents, borrower information, and eligibility.

Additional Resources: