Loans issued under the Economic Injury Disaster Loan (EIDL) program over $25,000 require a blanket lien on the assets of the business. The lien is a Universal Commercial Code (UCC-1) lien allowing the SBA to take an interest in the assets of the business.
SBA has concluded that there is no prohibition on a lender with a superior lien position to the UCC-1 lien filed under the EIDL loan arrangement to continue to advance additional funds under an existing borrowing arrangement. SBA originally required borrowers to obtain written consent from SBA before taking future advances.
This requirement was rescinded and removed from the Requirement Relative to Collateral conditions in the EIDL lending arrangement effective June 18, 2020. SBA will be modifying existing EIDL loans issued before this date through a loan modification letter. Therefore, EIDL borrowers are permitted to continue to draw from and receive additional loan funds from a lender with a superior lien position without jeopardy.
The EIDL loan agreements contain language requiring consent before selling or transferring collateral. SBA will not arbitrarily withhold consent which is generally granted upon request when the sale or transfer benefits the business and allows it to continue to operate. The turnover of inventory is allowed in the ordinary course and does not require consent.
Borrowers seeking consent for subordination should contact the SBA through the following methods:
U.S. Small Business Administration
Processing and Disbursement Center
14925 Kingsport Road
Fort Worth, TX 76155-2243
Fax (202) 481-5931
Emails should have "COVID-Subordination Request" in the subject line.