What is the impact of SBA’s lien requirements on EIDL loans over $25,000 on a borrower’s ability to obtain other financing for business operations?

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’s lien does not apply to real estate or titled vehicles.

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 This requirement was rescinded and removed from the Requirement Relative to Collateral conditions in the EIDL lending arrangement effective June 18, 2020.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.

How do the borrower/lender request a subordination of SBA’s lien when needed for new financing?

Requests for subordination, which are currently taking about 5-7 business days to process due to volume, should be sent to pdc.pdcaccountscollateralreview@sba.gov and include the following information:

  • Borrower’s Name or Company Name
  • SBA EIDL Loan Number or Application Number
  • For the subordination document: Lender’s Name
  • Lender’s Mailing Address
  • Name of Lender’s Authorized Signer & Title
  • Lender’s Contact Name and Email Address for That Contact
  • The Proposed Loan Amount of the Loan Extended to the Borrower by Lender

The SBA PDC can follow up with verification of borrower's consent and any additional information needed, such as copies of the filed UCC(s).

SBA PDC will review and, once approved, the SBA PDC will prepare and execute a Subordination Agreement that subordinates the collateral security in the EIDL loan to the lien of the new lender and forward the signed document to the requestor and borrower.

This completed form is then e-mailed exclusively through Box.com to the borrower and lender, per SBA security policy for all electronic documents presented outside of the application portals. Some lenders are unable to access the Box.com links for electronic documents; in such cases, lenders should note that the documents are also provided to the borrowers in the same fashion and borrowers are able to freely share their personal documents to suit their businesses. Physical documents are mailed USPS.

Additional information is available on SBA's Economic Injury Disaster Loans webpage, Disaster Loan Applications webpage, and guidance on refinancing EIDLs with Paycheck Protection Program loan proceeds.

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