EIDL Hardship Accommodation Plan (HAP): Am I Eligible??

Yes. According to the SBA, “COVID EIDL borrowers are aware of all repayment options - including the opportunity for hardship repayment plans.... Many borrowers can apply for a hardship accommodation plan directly through the MySBA loan portal.” and the SBA specifically identifies “unable to pay” as one potential reason for requesting a hardship accommodation. The SBA currently calls this “payment assistance,” and eligible COVID-19 EIDL borrowers can request it through the SBA Loan Portal. Borrowers who believe that they may qualify can request payment assistance through the SBA Loan Portal.

Additionally, it is important to note that a hardship request is not equivalent to a request for loan forgiveness. As the SBA explains, “All COVID EIDL borrowers must repay their loans, but the SBA has programs to help - including expanded hardship accommodation plans. COVID EIDL hardship accommodation plans significantly lower monthly payments - sometimes as low as $25 per month - for six months, and then payments gradually increase over a multi-year period.” With this in mind, if you believe you may qualify for an EIDL HAP, you will need to determine the program’s requirements for eligibility and to see whether you may be able to meet them. This will allow you to determine if you need to continue working with the SBA to develop alternative repayment strategies (or to defend yourself, if necessary).

The SBA states that eligible COVID-19 EIDL borrowers may reduce their payments by 50% for six months, subject to requirements including that the loan be less than 90 days past due, the business be actively operating, and the request result from temporary financial difficulty rather than a long-term challenge. As a result, borrowers who wish to use HAP are reliant on the SBA for confirmation of these terms. For most EIDL borrowers, this means that contacting the SBA for confirmation of the program’s terms is an essential first step toward getting the relief that they need.

An offer in compromise is also available to EIDL borrowers who cannot afford to make their monthly payments, and it is completely separate from the EIDL Hardship Accommodation Plan. While a hardship accommodation may be available to any EIDL borrower who meets the program’s requirements, an offer in compromise is entirely discretionary on the SBA’s part and requires that the borrower can establish “substantial doubt” that the SBA is able to collect the amount owed. In other words, the SBA can accept an offer in compromise only if it decides that doing so is in its own best interests.

Does Qualifying for an EIDL Loan Establish HAP Eligibility?

The Federal Government created EIDL loans to address economic injuries caused by declared disasters. The program was available to businesses and nonprofit organizations that were located in the United States or its territories, and, under its authorizing statute, it was designed to support entities that had the capacity to recover once they received assistance from the Small Business Administration (SBA). While eligibility for the EIDL program was restricted to businesses and nonprofit organizations that met three primary criteria (including compliance with a size standard), applicants also had to maintain substantial ties to the disaster that triggered the program.

Specifically, eligible applicants for the EIDL program included:

• Qualifying small businesses;
• Agricultural cooperatives; and,
• Private nonprofit organizations.

To qualify, most applicants needed to meet the following three requirements as well:

• Compliance with Applicable SBA Size Standards. Applicants needed to meet applicable size standards based on the business category to which they applied. These standards were primarily measured by average employee count or annual revenue.
• Location of Business Operations. The applicant’s business generally needed to operate in an SBA-declared disaster area. In cases when the business was outside of a declared disaster area, the business still needed to show a “direct relation” to the disaster.
• Economic Injury from Declared Disaster. The applicant’s business generally needed to show “economic injury” resulting directly from the declared disaster (e.g., the COVID-19 pandemic). This injury needed to result in “substantial economic damage” making it “Substantial economic injury is such that a business concern is unable to meet its obligations as they mature or to pay its ordinary and necessary operating expenses.” without a loan.

Given that EIDL HAP is a specific program under the terms of an EIDL loan, it is highly likely that qualifying for an EIDL loan is one of the requirements for HAP eligibility. However, it is unlikely to be the only requirement. This is because EIDL HAP is marketed toward “unable-to-pay borrowers” rather than all EIDL borrowers. Therefore, if you believe that you may be eligible for an EIDL HAP, you will need to contact the SBA to determine the program’s other eligibility requirements (and see if you can meet them).

If any of this describes your situation, it is worth talking through with counsel. Spodek Law Group can be reached at 888 348 8028.

Could an Offer in Compromise Reduce an EIDL Balance Instead of HAP?

Unlike the Paycheck Protection Program (PPP), where forgiveness was a core feature of the loan program, EIDL loans are repayable government debt. This is true regardless of whether a borrower received an EIDL loan to help them pay their monthly employee payroll or to help them pay for other pandemic-related expenses. From this perspective, the fact that an EIDL loan is an “unable-to-pay” debt does not change the nature of the loan or the requirement to repay it (barring a successful appeal of repayment responsibility).

Given this basic fact, it is not surprising that the SBA’s materials on EIDL hardship accommodation plans (HAPs) and offers in compromise do not contain any language about automatic loan forgiveness. Borrowers must take additional steps to settle the loan amount below its full balance, or to settle it in full with a lump sum payment.

For some borrowers, this might mean that applying for an offer in compromise is more appropriate than seeking a hardship accommodation. While a hardship accommodation could potentially help an EIDL borrower make their monthly payments on a reduced amount, it does not reduce the loan’s outstanding balance.

In contrast, if you have a substantial amount of EIDL debt, an offer in compromise can potentially reduce the outstanding balance of your EIDL loan. This is one of the primary differences between EIDL loans and other types of debt, such as credit card debt. While the SBA allows borrowers to settle their EIDL loans at a fraction of the loan’s outstanding balance, borrowers must be able to prove that it is not feasible for them to repay the loan in full.

The request for an offer in compromise must include relevant financial information demonstrating that the borrower is unable to make payments. The SBA will then review this information and decide whether it will accept the request. The SBA is not obligated to accept any offer in compromise, and, like with all other forms of loan relief, a request to settle an EIDL loan will be rejected if the SBA determines that the request is not in its best interests.

Which Collection Actions Can Follow Missed EIDL Payments?

If a borrower misses an EIDL payment, the SBA will likely send the borrower a reminder followed by an increasingly formal collection notice. These are steps that the SBA will take prior to referring the account to the U.S. Department of the Treasury, and the fact that the borrower has not yet been formally declared “delinquent” does not eliminate the possibility of a Treasury referral in the future. The longer that a borrower continues to be unresponsive, the more likely is it that a referral will be issued.

If the Treasury does pursue collection of an outstanding EIDL loan balance, it will have a wide array of administrative collection tools at its disposal. These include, but are not limited to:

• Offsetting federal payments (i.e., recouping the borrower’s EIDL loan balance from other federal benefit payments).
• Withholding tax refunds.
• Garnishing wages.
• Seizing property and other assets.

If the Treasury is unable to recoup the loan balance in full using these administrative tools, the SBA may decide to pursue enforcement of the borrower’s loan obligations in court. If the SBA files a lawsuit, then the government will have the opportunity to use all of its legal enforcement tools to hold the borrower and any other legally responsible parties to the terms and conditions of the loan.

As for personal liability for repayment of the outstanding EIDL balance, this is a question that is specific to the terms and conditions of each borrower’s individual loan documents. While the business itself will be primarily liable for repayment of the loan (barring a successful appeal of its repayment responsibility), the extent to which the business owner(s) will also be personally liable for repayment depends on whether the loan documents contain a personal guarantee. In the event that a personal guarantee was required (or if the loan amount was above the SBA’s threshold for requiring a guarantee), this could potentially subject the business owner(s) to personal liability for repayment unless they qualify for discharge under the pertinent federal law.

Finally, for those borrowers whose business failed due to the pandemic, this is a question that also depends on the terms and conditions of the individual’s loan documents. As for the reviewed materials, there is no reason to conclude that the federal government will discharge the repayment liability of an EIDL borrower simply because the business failed during the pandemic.

Calling About Someone You Love

Most first calls to a defense firm come from a family member rather than the person under investigation. If that is you, Spodek Law Group answers its phone at any hour, and families retain the firm on a relative's behalf every week. Reach it at 888 348 8028.