EIDL Collateral Confusion

[John Cantu]

Hey everyone. So I got approved for an EIDL in excess of 25k. I know that over this amount requires them to take collateral, the details of which are very obscure. My concern is if I sell any property as a result of my normal operations, am I going to need to let the SBA know every time? Would I be able to get around this if each property is in a different LLC? Thanks.

[Michael Plaks]

Originally posted by @John Cantu:

I’m wondering if collateral would apply to a separate business that I own with a partner. We did and flip, I shouldn’t have an issue there right? I don’t want to be in violation of anything.

I assume this is what you mean: a business that you own personally received an EIDL loan. You're also a partner in another business, and that other business did a flip. You're wondering if the flip of which you own 50% thru the partnership is required to be declared as collateral against your own EIDL loan. The answer is no, to the best of my knowledge. Sadly, literally nobody can claim knowing anything for sure when it comes to these SBA loans.

As to your desire to never violate anything - forget it, it's impossible when in business.

[Michael Plaks]

@John Cantu

From the agreement: "Borrower will not sell or transfer any collateral (except normal inventory turnover in the ordinary course of business) described in the "Collateral" paragraph hereof without the prior written consent of SBA."

[John Cantu]

@Michael Plaks thank you. I’m wondering if collateral would apply to a separate business that I own with a partner. We did and flip, I shouldn’t have an issue there right? I don’t want to be in violation of anything.

[Michael Plaks]

Originally posted by @John Cantu:

I’m wondering if collateral would apply to a separate business that I own with a partner. We did and flip, I shouldn’t have an issue there right? I don’t want to be in violation of anything.

I assume this is what you mean: a business that you own personally received an EIDL loan. You're also a partner in another business, and that other business did a flip. You're wondering if the flip of which you own 50% thru the partnership is required to be declared as collateral against your own EIDL loan. The answer is no, to the best of my knowledge. Sadly, literally nobody can claim knowing anything for sure when it comes to these SBA loans.

As to your desire to never violate anything - forget it, it's impossible when in business.

[John Cantu]

Thanks, @Michael Plaks. Helpful as always!

[Calvin Thomas]

No one knows the answer to this.  In theory, they are not assigning collateral to real property or other property owned by other LLCs.  However, no one really knows... Including the SBA.  We've asked our lawyers and accountant, no one knows the answer to this.  In addition, I am being told the the entire loan amount is being reported to your Experian credit report.  This would probably prevent many businesses in receiving other loans from banks should they check; which they will.  We often wonder if other banks will call their lines if they see a 150k SBA loan on my credit report.  Not sure if I will be taking my SBA EIDL loan.  There's just too many variables without any answers.

[John Cantu]

@Calvin Thomas there certainly are. It's tough to make sound decisions without enough answers. 

[Michael Plaks]

Originally posted by @Calvin Thomas:

No one knows the answer to this.  

Or to any other EIDL question, really.

[Ryan K.]

Has anyone found anything out about EIDL loans?  My current mortgage on the investment property (formerly primary residence) is 3.625%, so it doesn't make sense to accept this to pay the rent.  Can I use this as part of a down payment for my next investment property, to grow my small RE business?

I have the following offer.  If I take more than $25k, is there a 2nd lien on the property?  Are there any online resources that clarify any of this?

[Matt Kelling]

I just spoke with an attorney for the SBA yesterday and again today and what she told me was different than what several people stated above.  She indicated that collateral can not include real estate but rather your (business) personal property and they already estimated your collateral available when they determined your loan amount.  She advised me to email disastercustomerservice @ sba.gov to determine what exactly they were utilizing as collateral since the terms of the contract are made to cover the thousands/millions of people who are taking loans.  Also, she was very clear that this loan does not show up on a credit report unless it goes into default (I'm not sure how that's possible).

[Michael Plaks]

Originally posted by @Matt Kelling:

I just spoke with an attorney for the SBA yesterday and again today and what she told me was different than what several people stated above.  

Thank you for sharing. Ours were just guesses, as we said. This sounds like the real answer. Great to know.

[Juan Ayala]

Originally posted by @Matt Kelling:

I just spoke with an attorney for the SBA yesterday and again today and what she told me was different than what several people stated above.  She indicated that collateral can not include real estate but rather your (business) personal property and they already estimated your collateral available when they determined your loan amount.  She advised me to email disastercustomerservice @ sba.gov to determine what exactly they were utilizing as collateral since the terms of the contract are made to cover the thousands/millions of people who are taking loans.  Also, she was very clear that this loan does not show up on a credit report unless it goes into default (I'm not sure how that's possible).

Do you have the contact info for the attorney at the SBA that you reached? I have tons of questions and I don't get clear ones from the normal disaster line. Thank you!