BEWARE THE ECONOMIC INCOME DISASTER RELIEF LOAN! (EIDL)
Are you looking to buy a business? Has the Seller told you the company has no liabilities? Then when you ask about the SBA loans, does the Seller tell you the PPP loan was forgiven? If the answer is yes, then ask one more question. Did the Seller take out an Economic Income Disaster Relief Loan?
These loans varied based on the size of the business, but in general they were around a maximum of $150,000.00 for small businesses that relied on the program during the COVID outbreak. Most EIDL loans had no personal guarantees. As a result, some Sellers erroneously believe they can sell their businesses and walk away from liability on the EIDL. Others want to pay it off over the 30 year term. As of April, 2022, payments on all EIDL loans are still under deferment, and many businesses have simply not made payments under the loans, and so the balance has been accruing interest at a rate of 3.75%.
Savvy buyers should be aware the EIDL requires SBA approval on any and all transfers of assets. While some Sellers may suggest the SBA will never catch wise to the transaction for so long as payments are being made, Buyers should be aware if the SBA does find out, then the assets which were purchased could in theory be seized and sold by the SBA, which retained a security interest on all assets of the borrowing entities.
Bottom line: make sure you either payoff the EIDL loan at closing, or get SBA permission to sell the assets. The Miller Law Firm, P.A. can assist you in helping sell or purchase entities. Please feel free to call us at (864) 527-0413 and we are ready to help.
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