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November 08, 2021 
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An easy way to understand the SBA Covid-19 EIDL Loan Collateral and Personal Guarantee Requirements. Many independent contractors, self employed individuals and small businesses got the SBA EIDL Loan in 2020 or 2021 and they need to know the collateral and personal guarantee requirements that the SBA Covid-19 EIDL Loan has.
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Transcript
Hello from FreedomTax Accounting, we’re an accounting firm where we have been providing quality tax and accounting services, now for over 20 years.
We wanted to do this quick video to achieve two things: The first one is that we wanted to try to explain in the simplest way possible the SBA EIDL Loan requirements, because we have seen many videos on YouTube where people try to explain the SBA EIDL Loan collateral requirements, but we think they do it in a more complex way, so we’re going to try to keep it simple in a way that everybody can understand. The second thing we want to do is that we’re going to show you a way where we feel is the most effective way to find the answers to all your SBA EIDL Loan questions. So, that’s what we’re going to talk about in this video.
So, let’s go to the presentation. We’re going to talk about the collateral requirements for the SBA EIDL Loan, if you did not know what EIDL stands for, it’s “Economic, Injury, Disaster, Loans”.
Now, first of all, what is collateral? Collateral is something that you pledge, in this case since you have a business, is your business assets. If you’re an independent contractor, then it’s your personal assets; as security for repayment of a loan to be forfeited in an event of a default. Basically, the SBA, which in this case is the lender, has the right to take your assets if you fail to pay back the loan; that’s simple, that’s the way collateral works, you’re getting a loan and you have to put something as a guarantee; if you don’t pay the loan, the SBA does have the right to take your assets.
Now, the simplest way to understand the SBA EIDL Loan collateral requirements is to separate into four groups.
The first group is people or businesses that got from $1 to $25,000 dollars, the second group is from $25,001 to $200,000 dollars, the third group is $200,001 to $500,000 dollars, and the fourth group from $500,001 to $2,000,000 dollars. So, depending on the amount of EIDL Loan that you received, you’re going to fall into one of these four categories for EIDL collateral requirements.
So, the first group are people or businesses that got an EIDL Loan from $1 to $25,000; basically, it’s an unsecured loan, meaning that there’s no collateral required. That doesn’t mean that if you don’t pay the loan, you won’t get into trouble, because if you got the loan as a business, then if you don’t pay it, the SBA may try to find a way to get their funds back; or if you close, you may have to go into bankruptcy. If you got this loan as an independent contractor and the loan is under your name, then we still don’t know exactly how the SBA is going to handle defaults for these loans, but remember this is a federal loan and you’re going to have federal debt; so, one theory is that if you don’t pay the loan, the SBA may go after your tax refund; we still don’t know. In terms of collateral, loans that are from $1 to $25,000$ dollars don’t require collateral.
The second group. The second group is people who got a loan or businesses who got an EIDL Loan from $25,001 to $200,000 dollars. Here collateral is required but only business assets, there’s no personal guarantee and there’s no real estate collateral. In this group only your business assets are at risk; it’s your business vehicles, your inventory, the cash that you have on your business account, but the owners of the business are not personally liable for this loan. So, if the business doesn’t pay the loan, then the SBA will only go after the business assets, they won’t go after the owner’s assets; that’s why there’s no personal guarantee and there’s no real estate collateral required.
The third group, businesses are individuals that got an EIDL Loan of $200,001 to $500,000 dollars. Once again, the business assets are required as collateral but now there’s a personal guarantee required, meaning that the owners of the business, the majority of the cases are owners that have at least 20% ownership of the business, they are personally liable for the loan; so that means if this loan goes into default, then the SBA first is going to go after your business assets, if those don’t cover the loan, then the SBA can go after your personal assets as the owner of the business. Now, one thing is that they cannot take your real estate, because real estate is not a required collateral in this group, so they can go after your other assets but they cannot take away your real estate assets.
The fourth group it’s businesses or individuals that received $500,001 to $2,000,000 dollars. Now, the business assets are collateral, personal guarantee required, but the difference is now real estate also serves as collateral for the loan. So, if your business doesn’t pay the loan, they’re going to go after your business assets; if those don’t cover the loan, they’re going to go after your personal assets; and yes, if you have real estate and the business has real estate, they can go after your real estate as collateral or as a guarantee.
Those are basically the differences between EIDL Loan collateral requirements.
Now, a lot of people have many questions on the EIDL Loan and we think we found the best way to answer all of your SBA EIDL Loan questions. There is a very detailed frequently asked questions document on the SBA website. Let me show you how to get it.
You basically need to go to the SBA website www.sba.gov, click here where it says “EIDL”. Scroll down until you see where it says here “FAQ Regarding COVID-19 EIDL”, you click that. That’ll take you to this page and you download this document. This is a very complete document where a lot of the questions that people have concerning the EIDL Loan, all the answers are here, also if you want to go into more detail about EIDL collateral, there’s more detailed information in this document. So, it’s a very easy way to get all your answers to questions for your EIDL Loan.
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