# Are SBA EIDL Loans Assumable? Yes, but only with the SBA's approval. A buyer can take over an existing EIDL loan once the SBA consents to a servicing request backed by the documents its requirement letter lists, such as the sale agreement and a business plan. Until the SBA approves, the original borrower remains responsible for repayment, and the loan's terms generally stay unchanged. By [Capital Gurus Editorial Team](https://capitalgurus.com/editorial-policy/) · [SBA Loans](https://capitalgurus.com/blog/category/sba-loans/) · Published July 22, 2023 · Updated July 23, 2023 [See your financing options](https://capitalgurus.com/apply/) — soft credit pull only, no obligation ## Key Takeaways: - An SBA EIDL loan can be assumed by a new owner only with the SBA's approval. - Until the SBA approves an assumption, the borrower who received the loan remains responsible for repaying it. - Selling the business or changing its ownership requires a servicing request to the SBA, with the paperwork its requirement letter lists. - New EIDL loans are available only after a declared disaster; the COVID-19 EIDL program no longer takes applications. - It is important to carefully review the terms and conditions of an SBA EIDL loan before accepting it, including what a future sale of the business would require. ## 1. What is the Small Business Administration (SBA) Economic Injury Disaster Loan (EIDL)? The Small Business Administration (SBA) Economic Injury Disaster Loan (EIDL) program is a financial assistance program designed to provide low-interest loans to small businesses that have suffered substantial economic injury as a result of a declared disaster, such as a pandemic, hurricane, or wildfire. The EIDL program aims to help businesses cover their operating expenses and meet their financial obligations during times of economic hardship. EIDL loans are provided directly by the SBA and can be used for various purposes, including working capital, paying fixed debts, payroll costs, accounts payable, and other expenses that could have been met had the disaster not occurred. These loans are different from other SBA loan programs and are specifically tailored to assist businesses affected by disasters. ### Key features of the SBA EIDL program include: - Low interest rates: EIDL rates are set by the SBA, with a lower rate for non-profit organizations than for small businesses. - Long repayment terms: EIDL terms can run much longer than most business loans, with the SBA setting the term from the borrower's ability to repay. - No prepayment penalties: Borrowers can repay their EIDL loans early without incurring any additional fees or penalties. #### Note: The SBA EIDL program was particularly relevant during the COVID-19 pandemic when many small businesses faced significant financial challenges due to lockdowns and reduced customer demand. However, the program is available beyond specific disaster periods and can be utilized by eligible businesses facing economic hardships caused by any declared disaster. ## 2. How does the SBA EIDL loan program work? ### Understanding the SBA EIDL Loan Program The Small Business Administration (SBA) Economic Injury Disaster Loan (EIDL) program provides financial assistance to small businesses affected by disasters or economic downturns. These loans are intended to cover working capital expenses that cannot be met due to the disaster’s impact. The program offers low-interest loans with long repayment terms, providing businesses with a lifeline during challenging times. #### Key Features of the SBA EIDL Loan Program 1. Loan Amount: The loan amount is determined based on the economic injury suffered by the business, up to a program maximum set by the SBA. 2. Interest Rates: The interest rates for these loans are typically lower than those offered by traditional lenders, making them an attractive option for small businesses. 3. Repayment Terms: The repayment terms can be long, depending on the borrower’s ability to repay. 4. Use of Funds: The funds from an SBA EIDL loan can be used for various purposes, including paying fixed debts, payroll, accounts payable, and other operating expenses that could have been met if not for the disaster’s impact. 5. Collateral Requirements: For current disaster EIDLs, collateral is required for loans above a set amount, and smaller loans may not require the owner's primary residence if other assets are sufficient. Overall, the SBA EIDL loan program plays a crucial role in providing financial support to small businesses facing economic hardships caused by disasters or unforeseen circumstances. ## 3. Are there any specific eligibility criteria for small businesses to qualify for an SBA EIDL loan? ### Determining Eligibility for an SBA EIDL Loan To qualify for an SBA EIDL loan, small businesses need to meet certain eligibility criteria set by the Small Business Administration. These criteria include: #### 1. Business Size The business must meet the SBA’s definition of a small business, which varies depending on the industry. The size standards can be determined using the SBA’s Size Standards Tool. #### 2. Economic Injury The business must have suffered economic injury as a direct result of the disaster or event for which the loan is being sought. This could include loss of revenue, increased expenses, or other negative impacts on the business’s financial health. #### 3. Creditworthiness Applicants are evaluated based on their credit history and ability to repay the loan. While perfect credit is not required, a strong credit score and a good repayment history increase the chances of approval. #### 4. Repayment Ability The business must demonstrate its ability to repay the loan by providing financial statements, tax returns, and other relevant documentation that showcases its financial stability and cash flow potential. It is important for small businesses to carefully review and understand these eligibility criteria before applying for an SBA EIDL loan to ensure they meet all requirements and increase their chances of approval. ## 4. Can a business owner transfer their SBA EIDL loan to another individual or entity? ### Transferring an SBA EIDL Loan Under certain circumstances, it is possible for a business owner to transfer their SBA EIDL loan to another individual or entity. However, this process is subject to specific restrictions and requirements set forth by the Small Business Administration (SBA). Before transferring the loan, both parties must meet the eligibility criteria and obtain approval from the SBA. To initiate the transfer, the current borrower must submit a written request to the SBA, explaining their reasons for transferring the loan and providing relevant documentation. The proposed new borrower will also need to complete an application and meet all necessary qualifications. If approved, the SBA will review and evaluate the financial standing of the new borrower before finalizing the transfer. ## 5. Is it possible for someone to assume the responsibility of repaying an existing SBA EIDL loan? ### Assuming Responsibility for Repayment Yes, it is possible for someone to assume the responsibility of repaying an existing SBA EIDL loan under certain circumstances. The assumption process involves transferring both the rights and obligations of the original borrower to a new party who agrees to take over repayment responsibilities. In order for someone to assume an existing SBA EIDL loan, they must meet specific criteria outlined by the Small Business Administration. This includes demonstrating their ability to repay the loan and meeting any additional eligibility requirements set forth by the SBA. Additionally, both parties involved in the assumption must agree on its terms and conditions before proceeding with any formalities. ## 6. Are there any legal provisions that allow for the assumption of SBA EIDL loans? ### Legal Provisions There are specific legal provisions that allow for the assumption of Small Business Administration (SBA) Economic Injury Disaster Loans (EIDL). According to the SBA, an EIDL can be assumed by another party if certain conditions are met. These conditions include obtaining written consent from the SBA and meeting all eligibility requirements for assuming the loan. It is important to consult with legal professionals or experts in order to fully understand and comply with these legal provisions. #### Eligibility Requirements In order to assume an SBA EIDL loan, the assuming party must meet certain eligibility requirements. These requirements may include having a strong credit history, demonstrating financial stability, and providing evidence of sufficient resources to repay the loan. Additionally, the assuming party may need to demonstrate relevant experience or qualifications in managing similar loans or financial obligations. It is crucial to thoroughly review and fulfill these eligibility requirements before proceeding with assuming an SBA EIDL loan. ## 7. What steps are involved in assuming an SBA EIDL loan from another party? ### Assuming an SBA EIDL Loan To assume an SBA EIDL loan from another party, several steps need to be followed. EIDL loans are made directly by the SBA, so the SBA is the party that must approve. The buyer and seller agree on the sale, then the borrower submits the SBA's assumption request with the documents its requirement letter lists, such as the sale agreement and a business plan with an ownership summary. If the SBA approves, the new borrower signs the assumption documents. #### Steps: 1. Agree on the sale between buyer and seller. 2. Submit the SBA's assumption request and supporting documents to the SBA's servicing team. 3. Sign the assumption documents once the SBA approves. ## 8. Are there any restrictions on who can assume an SBA EIDL loan? ### Eligibility for Assuming an SBA EIDL Loan While assuming an SBA EIDL loan can provide opportunities for small businesses, there are certain restrictions on who can take over such loans. The Small Business Administration (SBA) has specific eligibility requirements that must be met by potential borrowers looking to assume these loans. Generally, individuals or entities with a good credit history and sufficient financial resources are more likely to meet these criteria. Because the SBA makes EIDL loans directly, there is no separate lender adding its own criteria. #### Restrictions: - Potential borrowers must meet eligibility requirements set by the Small Business Administration (SBA). - The SBA must approve the assumption. ## 9. Do both parties need to agree on the assumption of an SBA EIDL loan, or can it be done unilaterally? ### Agreement for Assuming an SBA EIDL Loan The assumption of an SBA EIDL loan cannot be done unilaterally; it requires the agreement of both parties involved. The current borrower must agree to the transfer, and the SBA must give its consent. This agreement ensures that all parties are aware of and accept the transfer of responsibility for the loan. Without mutual agreement, assuming an SBA EIDL loan is not possible. #### Requirements: - Mutual agreement between all parties involved. ## 10. Are there any fees or costs associated with assuming an SBA EIDL loan? ### Processing Fees Assuming an SBA EIDL loan may involve certain fees and costs that borrowers need to consider. Ask the SBA's servicing team whether any fee applies to your request before proceeding with assuming an SBA EIDL loan. ### Legal and Administrative Costs In addition to processing fees, there may be legal and administrative costs associated with assuming an SBA EIDL loan. These costs can include attorney fees for reviewing and drafting necessary legal documents, as well as administrative charges for handling paperwork and documentation related to the assumption process. Borrowers should consult with legal professionals or financial advisors to get a clear understanding of these potential costs before making a decision. #### List of potential costs: - Any fee the SBA applies to the request - Attorney fees for legal document review - Administrative charges for paperwork handling It is crucial for borrowers to factor in these fees and costs when considering whether assuming an SBA EIDL loan is financially viable for their business. ## 11. How does assuming an SBA EIDL loan impact the terms and conditions of the original loan agreement? When a borrower assumes an SBA EIDL loan, it generally means taking over the existing terms and conditions of the original loan agreement. This means that all rights, responsibilities, obligations, interest rates, repayment terms, and other provisions outlined in the original agreement will typically remain unchanged unless otherwise negotiated between both parties involved in the assumption. However, it is essential to thoroughly review and understand the specific terms of the original loan agreement before assuming it. There may be certain clauses or conditions that could have significant implications for the borrower’s financial situation or business operations. It is advisable to seek legal counsel to ensure a comprehensive understanding of the impact assuming an SBA EIDL loan may have on the terms and conditions. ### Key considerations: - Reviewing and understanding the original loan agreement - Identifying any potential clauses or conditions that may impact the borrower - Seeking legal counsel for comprehensive advice By carefully examining the terms and conditions, borrowers can make informed decisions about whether assuming an SBA EIDL loan aligns with their financial goals and capabilities. ## 12. Can assuming an SBA EIDL loan affect the borrower’s credit score or financial standing in any way? ### Impact on Credit Score Assuming an SBA EIDL loan can potentially impact the new borrower’s credit. The loan becomes a debt the new borrower must repay, so future lenders will count it as an existing obligation, and late payments after the assumption can hurt the new borrower's credit. ### Financial Standing Assuming an SBA EIDL loan can also have implications for the new borrower’s financial standing. The terms and conditions of the assumed loan will determine how it affects their financial situation. If the interest rate and repayment terms are favorable, assuming an existing loan can provide cost savings and improve cash flow for the business. However, if the assumed loan has unfavorable terms or requires a large repayment amount, it could strain the financial resources of the new borrower. It is important for potential borrowers to carefully review their own financial situation and consider consulting with a financial advisor before assuming an SBA EIDL loan to fully understand how it may impact their credit score and overall financial standing. ## 13. Are there any advantages or disadvantages to assuming an existing SBA EIDL loan rather than applying for a new one? ### Advantages of Assuming One advantage is that assuming an existing SBA EIDL loan may come with more favorable terms compared to applying for a new loan. The interest rate and repayment terms of the assumed loan may be more favorable, resulting in cost savings for the borrower. ### Disadvantages of Assuming One potential disadvantage of assuming an existing SBA EIDL loan is that the borrower takes on any existing risks associated with the loan. If the original borrower defaulted or had financial difficulties, it could pose challenges for the new borrower. Additionally, assuming a loan means inheriting its repayment schedule and terms. If these terms are not suitable for the borrower’s financial situation or business needs, it may be more advantageous to apply for a new loan with terms that better align with their requirements. Ultimately, businesses should carefully evaluate the advantages and disadvantages of assuming an existing SBA EIDL loan versus applying for a new one based on their specific circumstances and financial goals. ## 14. What happens if a borrower defaults on their assumed SBA EIDL loan? Who is responsible for repayment in such cases? In the event that a borrower defaults on an assumed SBA EIDL loan, the responsibility for repayment falls on the new borrower who assumed the loan. When assuming a loan, the new borrower agrees to take over all obligations and liabilities associated with that loan. If default occurs, consequences can include action by the SBA to recover funds owed. This may involve collection agencies, asset seizure, or other measures to recoup losses. Defaulting on an SBA EIDL loan can have severe consequences for both personal and business finances. It is crucial for borrowers considering assumption of an SBA EIDL loan to thoroughly assess their ability to meet repayment obligations before taking on such responsibility. Proper financial planning and risk assessment should be conducted to ensure that default does not occur. Capital Gurus is not an SBA lender; SBA loans are made by SBA-participating lenders. Example: Imagine a buyer deciding whether to assume a seller's EIDL loan or look for new financing. Keeping the existing loan may bring terms the buyer likes, but it also brings the loan's repayment schedule and any trouble the seller had paying it. If that schedule doesn't fit the business, new financing may suit it better. Example: Say the owner of a small print shop agrees to sell it to a longtime employee who wants to keep the existing EIDL loan. The seller submits the SBA's assumption request with the sale agreement and the buyer's business plan. Only after the SBA approves does the buyer sign the assumption documents and take over repayment. Decisions from some providers the same day, depending on the provider. [Get my options](https://capitalgurus.com/apply/) · [Call (725) 425-4307](tel:+17254254307) ## Frequently asked questions ### Can you transfer an EIDL loan to another person? In order to transfer the ownership of the loan to a new owner, you must obtain authorization from the Small Business Administration (SBA). For a COVID-19 EIDL, you submit the SBA's assumption or change-in-ownership request, with the paperwork listed in its requirement letter, to the COVID EIDL servicing team. The new owner takes on the loan only if the SBA approves. ### Does SBA ever forgive EIDL loans? EIDL loans are not forgivable and must be repaid. Only the EIDL Advance grants that some borrowers received did not have to be repaid. ### Are EIDL loans secured by real estate? For current disaster loans, the SBA requires collateral for EIDL loans above a set amount, and smaller loans may not need the owner's primary residence if other assets are sufficient. The SBA won't decline a loan solely for lack of collateral. Check the current thresholds on sba.gov. ### What happens if I have a EIDL loan and go out of business? Closing the business does not cancel the debt. Tell the SBA through its loan portal or the COVID EIDL servicing center, and ask about options such as an offer in compromise. It is advisable to consult with a lawyer. ### Are you personally liable for Eidl? If you are a sole proprietor, you are personally responsible for your EIDL loan and any other debts, like missed commercial lease payments. Bankruptcy lawyers can assist you in getting your EIDL loans discharged. ## Related reading - [Are SBA EIDL Loans Personally Guaranteed: Everything You Need to Know](https://capitalgurus.com/blog/are-sba-eidl-loans-personally-guaranteed/) - [Exploring SBA Disaster Loans and their Forgiveness Options](https://capitalgurus.com/blog/sba-disaster-loan-forgiveness/) - [How Long Does SBA Loan Approval Take?](https://capitalgurus.com/blog/how-long-does-sba-loan-approval-take/) - [SBA loans](https://capitalgurus.com/loans-and-financing/sba-loans/) ## Next steps - [See your financing options](https://capitalgurus.com/apply/) — One application, soft pull only - [Business loan calculator](https://capitalgurus.com/calculators/business-loan-calculator/) — Estimate a payment - [Talk to a funding advisor](https://capitalgurus.com/contacts/) — Questions first? Or call a funding advisor at [(725) 425-4307](tel:+17254254307) ## One application. Every funding option. Skip the lender-by-lender chase. One application, three months of bank statements, and a dedicated advisor who brings the offers back to you side by side — terms set by the provider, disclosed before you sign. - [Apply now](https://capitalgurus.com/apply/) - [Call (725) 425-4307](tel:+17254254307) About 5 minutes, soft credit pull only · [talk to a funding advisor](https://capitalgurus.com/contacts/) --- Source: https://capitalgurus.com/blog/are-sba-eidl-loans-assumable/ · Capital Gurus is not a lender.