How Does Someone Breach Their EIDL and Enter Default?
The SBA makes it clear, any slips up, any deviations from the terms you signed for, and you're in default. All infringements can be found on your EIDL contract, but we went ahead and placed a few common ones on drop-downs below. The exact wordage can be seen in quotes at the top of each drop-down, and a short question to simplify it will be found in bold beneath that. Use it as a guide to see if you've defaulted. An exhibition link to the portion of the EIDL that this page covers can be found here or at the bottom of the page.
Did I Make all Payments on Time?
"Borrower may prepay this Note in part or in full at any time, without notice or penalty. Borrower must pay principal and interest payments of $731.00 every month beginning Twelve (12) months from the date of the Note..."
(SBA FORM 147 B (5-00) pg. 2)
"...All remaining principal and accrued interest is due and payable Thirty (30) years from the date of the Note."
(SBA FORM 147 B (5-00) pg. 2)
Did you make all payments at the place SBA designates? (Numbers for monthly payment above are arbitrary)
Did I Take Care of all My Collateral?
"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."
(SBA Form 1391 (5-00) pg. 3)
Did you move, sell or transfer any collateral without the SBA's express consent?
Did I Correctly Utilize My SBA Loan Money?
"Borrower will use all the proceeds of this Loan solely as working capital to alleviate economic injury caused by disaster occurring in the month of January 31, 2020 and continuing thereafter and to pay Uniform Commercial Code (UCC) lien filing fees and a third-party UCC handling charge of $100 which will be deducted from the Loan amount stated above."
(SBA Form 1391 (5-00) pg.3)
Did you use the money collected from the loan for the express condition of alleviating economic injury caused by disaster occurring in the month of January 31, 2020? Then after that was settled, pay the proper fees?
Did I Obtain and Itemize all Receipts?
"Borrower will obtain and itemize receipts (paid receipts, paid invoices or cancelled checks) and contracts for all Loan funds spent and retain these receipts for 3 years from the date of the final disbursement."
(SBA Form 1391 (5-00) pg. 3)
Did you obtain and itemize every receipt for each individual loan fund you spent? The SBA may legally request them at any time.
Did I Relocate My Business?
"Borrower will not use, directly or indirectly, any portion of the proceeds of this Loan to relocate without the prior written permission of SBA. The law prohibits the use of any portion of the proceeds of this Loan for voluntary relocation from the business area in which the disaster occurred. To request SBA's prior written permission to relocate, Borrower will present to SBA the reasons therefore and a description or address of the relocation site. Determinations of (1) whether a relocation is voluntary or otherwise, and (2) whether any site other than the disaster-affected location is within the business area in which the disaster occurred, will be made solely by SBA."
(SBA Form 1391 (5-00) pg. 3)
Did you relocate the business without SBA's express permission?
Did I Purchase Foreign Made Products?
"Borrower will, to the extent feasible, purchase only American-made equipment and products with the proceeds of this Loan."
(SBA Form 1391 (5-00) pg. 3)
Did you purchase non-American products with your EIDL money?
Did I Receive Compensation From Another Source?
"Eligibility for this disaster Loan is limited to disaster losses that are not compensated by other sources. Other sources include but are not limited to: (1) proceeds of policies of insurance or other indemnifications, (2) grants or other reimbursement (including loans) from government agencies or private organizations, (3)claims for civil liability against other individuals, organizations or governmental entities, and (4) salvage (including any sale or re-use) of items of damaged property."
SBA Form 1391 (5-00) pg.3 & pg. 4
Did you get any assistance money from your insurance? Grants or reimbursements from government or private organizations? Maybe even the salvage of items of damaged property?
Did I Purchase and Maintain My Hazard Insurance?
"Within 12 months from the date of this Loan Authorization and Agreement the Borrower will provide proof of an active and in effect hazard insurance policy including fire, lightning, and extended coverage on all items used to secure this loan to at least 80% of the insurable value. Borrower will not cancel such coverage and will maintain such coverage throughout the entire term of this Loan."
(SBA Form 1391 (5-00) pg. 4)
Did you purchase and maintain the required hazard insurance, with the proper parameters? If you did, did you also send the proof to the proper address?
Did I Maintain all My Books and Records?
"Borrower will maintain current and proper books of account in a manner satisfactory to SBA for the most recent 5 years until 3 years after the date of maturity, including extensions, or the date this Loan is paid in full, whichever occurs first."
(SBA Form 1391 (5-00) pg. 4)
Have you documented financial and operating statements, insurance policies, tax returns and related filings, and a bunch more? The SBA can request almost anything from your bookkeeping, and requires that it's all in order.
No Problems Found From The List Above?
Unfortunately, there's more. The owner of the SBA EIDL should have a physical or electronic copy of their exact agreement, however in the case it's not on hand, here's an exhibition example. If anything within that document has not been followed exactly, the Borrower is in default. Defaulted and need to close your LCC or Company? We can help.