Does anyone have experience with assuming an SBA EIDL loan?

April 08, 2022

by a searcher from Clarkson University in Albany, NY, USA

In the process of acquiring a landscaping company. As part of the deal, my business partner and I are looking to assume ~$145k of outstanding SBA EIDL debt. According to a contact at the SBA, this is possible but one of three things can/will happen:

1: Note is called due upon transfer
2: 25% of the outstanding balance will be due upon the transfer
3: The loan will be assumed with no changes to rate and term

These are 3 very different outcomes that materially change the terms of the deal. The SBA rep says option 2 is most likely but not guaranteed.

Has anyone dealt with this type of situation?

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Reply by a professional
from University of Minnesota in Minneapolis, MN, USA

I worked on a partner buyout that addressed this issue. Note that the EIDL loan documentation almost certainly provides that a change in control or sale of any asserts is a term of default. The buyout I worked on never closed for unrelated reasons, but we were informed by our local SBA office here in Minnesota that we needed to get permission from the regional SBA office (if memory service, in Birmingham) in order to have any kind of change of control without paying off the EIDL loan. It was unclear if any guarantors would be released.

I suggest checking with your local SBA office, letting them know the situation, and finding out who you need to contact within the SBA to get the green light to transfer the debt and any related documentation needed to make this happen. It's squarely an SBA issue, so be nice. When it comes to government officials, I find you'll catch more flies with sugar (as they say).

Reply by a searcher
from Clarkson University in Albany, NY, USA

UPDATE: We successfully transferred the EIDL after negotiating with the SBA. Originally, upon submitting the transfer request, the SBA denied it and said the loan would be called due on the sale/transfer of the business. After explaining the circumstances, SBA allowed the loan to transfer and release the original guarantors with a 25% down payment on the outstanding principal. We successfully negotiated the down payment to 10% of the balance. Overall a relatively simple albeit lengthy process. Thanks @JakeParsley, we certainly took the "catch more flies with sugar" approach when negotiating with the SBA.

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