A short YouTube explainer (Jan 24, 2023) by Donna Genie advising small-business owners who cannot repay an EIDL loan. It explains steps to formally close a business (state dissolution, final tax return), what facts to include when emailing the SBA Disaster Loan Servicing Center, how to report or account for business assets used as collateral, and that loans over certain thresholds carry additional requirements (e.g., asset security over $25,000; personal guarantee over $200,000).
Are you getting calls from the SBA about repayment of your Eidl loan? They've got the robocallers in full force, and if you haven't started making payments on an Eidl loan, they'll be calling soon. The payment structure is required to start after the deferment period, which for most people is already in place. So you should be making payments if you had one. But what if you can't pay? I also received an email from a viewer of our first video on Eidl loans when you can't pay, and his case, his business had closed. It did not make it through Covid, and he wasn't able to stay alive in the business. So we have some suggestions on what you can do to let the SBA know that you're not going to be able to repay your Eidl loan. I'll preface this by saying we haven't received any guidance, as I've seen from the SBA yet, about how to let them know and what their process will be. But we want to be proactive and make sure that we're not hiding from them and will be up front to let them know what's going on. The first suggestion I have is to make sure your business is formally closed. That means if you are an LLC or a corporation, you're a separate entity from the person who owns the business. The business structure should be formally dissolved through the Secretary of State. That says the business doesn't exist any longer, and that also stops any legal actions against the business because it isn't there. Next, make sure that the final tax return has been filed for the business. If you have a separate entity that doesn't get filed inside of your 1040, then that tax return, if it's not due yet, may be coming due soon. But remember that when you file the dissolution with the Secretary of State. For a corporate or partnership entity, that tax return is due two months and 15 days after the date of dissolution. So you don't actually get to wait until April or March of the following year to file that return. So get on it. Make sure it's marked as a final return. And that shuts down the IRS system to say this is an active business. If you file on your personal return, you will need to file this year's return if there is. But there's not really a formal way to close a business on your personal return. Next, let's send the SBA some correspondence to tell them. Now the SBA recommends that you email them. They don't provide a physical address to mail to. So I'll provide those email addresses, the link below, and here at the end of our video. What should you include in that correspondence? Well, the email should include first the facts, the date of the loan, the loan amount, and the SBA loan number. You should also include the formal name of your business, the legal name of your business, and its federal ID number. Indicate in just a few sentences, not a soap opera, not a drama, but two or three sentences why your business closed. This is your chance to provide the sob story of why your business closed. Perhaps you couldn't get supplies because your supply chain dried up. Perhaps you had no employees. Perhaps your business is no longer needed. Indicate that in the letter. Provide the date that the business formally closed. Now, if you have a retail location, I'd suggest marking the date that you were last in business in that retail location. That may be different than your dissolution date. It absolutely will be different. So include when you actually stopped doing business as well. Lastly, the status of the business is assets. So if your business had any machinery, computers, desks, anything like that, and your loan was over $25,000, the assets of the business actually secured that loan. There is a UCC filing through the state that marks and says, hey, there's like, these are collateral for the loan. So you weren't actually allowed to sell or dispose of any assets under the terms of the EIDL loan agreement without written permission from the sba. Now, I think that's a little bit off the deep end because nobody would ever be able to get written permission in time to do anything to sell or dispose of. So I know that in realistic terms, that didn't happen for anybody. And I've not seen it happen at all, except in the case of a refinance of another SBA loan along with an EIDL loan. So make sure you tell them what happened to the assets. If there were some, were they scrapped, were they old, and you just threw them away because it wasn't worth keeping? Are they in a warehouse somewhere? Did you sell them to liquidate to pay creditors? Describe what happened to the assets. If indeed they are in a warehouse somewhere, technically, the SBA could come pick them up and that is their collateral on the loan. Now, remember that if your loan was over $200,000, you have a personal guarantee. The personal guarantee does not collateralize your house or your land, and it just means that they could come after you personally and your personal funds to pay that loan or get a judgment against you. And that's still, I think, a long way into the future before we get to those stages. We're not going to deal a whole lot with that right now. And one last thing I'll suggest on the assets. Remember that your bank accounts are technically assets of the business as well. Make sure that all your bank accounts have been formally closed at the bank and there is no money. Once that company is dissolved, it should have no assets at all. All right, what do you do with this email? All right, this magical email should be sent to the SBA Disaster Loan Servicing Center. There are two of these in the country, so I would suggest picking the one that's closer to you or you may look on your loan documents to determine which servicing center you are under. So for our East Coast Birmingham Disaster Loan center, so the email address is birmingham dlscba.gov so birmingham and then DLSC like disaster loan servicing center@sba.gov the other service center is in El Paso, Texas. That service center address is El Paso DLSC again like disaster loan servicing centerba.gov so good luck and keep us posted if you receive any correspondence back. We are tracking this throughout the country and trying to find out when the SBA gives some guidance as to what's going to happen to be able to guide everyone through this process. Also, make sure you subscribe to the channel so that you can keep informed. If there are further details, we'll be sure to post those here. Thank you. Please follow us on Facebook and Instagram. 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