Navigating Your Existing EIDL Loan and Lien
Navigating Your Existing EIDL Loan and Lien
If you're a small business owner, understanding how to manage your Economic Injury Disaster Loan (EIDL) is crucial, especially if you're considering applying for a new loan. According to the latest Standard Operating Procedure (SOP) 50 10 7.1 from the SBA, any EIDL approvals over $25,000 come with a lien on your business assets. This applies to both loans and advances received through the COVID-19 EIDL program.
So, what happens if you're looking to secure a new loan while already having an EIDL lien in place? Here are three pathways you can consider to tackle this situation effectively:
Lien Release: This option involves contacting the SBA to request a release of the EIDL lien. You might want to pursue this if you no longer need the EIDL funds or if you've fully repaid the loan. While this can clear the way for a new loan, you’ll likely need to show that your business is financially stable and capable of repaying any new financing.
Lien Subordination: This approach allows you to negotiate with the SBA to subordinate the EIDL lien to the new loan. In this case, the new lender would take precedence in the event of a default. While this could allow you to secure the new loan without releasing the existing lien, be prepared for potential fees and the need to convince the SBA that taking on the new loan won’t jeopardize your ability to repay the EIDL.
Payoff through Inclusion in New Loan: Here, you’d integrate the remaining balance of your EIDL loan into the new loan amount. This essentially pays off the EIDL loan with funds from the new financing, leading to a single loan with a new lien. While this simplifies your loan management and removes the EIDL lien, it could also increase your total debt and potentially alter your interest rate. This might be a wise choice if the new loan offers better terms than your existing EIDL.
While the long repayment period and low interest rate of the EIDL loan are appealing, the lien attached can create challenges when seeking new financing. Take the time to consider your options and choose the one that best aligns with your business goals.
This article is authored by Darin Manis, founder of LoanBox.