IP in SBA EIDL Loan

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by an intermediary
in Miami, FL, USA

1yr ago

IP in SBA EIDL Loan

I am selling a business that is a combination of a service and technology, it has technology IP that the buyer isn't interested in, so it's being transferred to a third company with a licensing agreement for usage, and in return he's getting a lower price for the company. The plan is to do a stock sale and try to retain the EIDL loan. What do you think the EIDL loan will think about the technology IP being transferred out of the company prior to the stock sale? (Assuming there is an unlimited licensing agreement)

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reply by a professional 1yr ago
from Pace University in New York, NY, USA

Does the loan agreement allow this transfer of the assets?

reply by a lender 1yr ago
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

Great question. Technically you are not supposed to transfer any of the assets per the EIDL loan agreement without the SBA approval. Secondly, the SBA has made clear that upon any sale of the business they require the EIDL to be repaid. Since the EIDL will show up as a lien on the business, the buyer would need to have that cleared, especially if they are using outside financing. If they are not using outside financing and paying cash, then I suppose there is a chance that the SBA will not know and the loan can stay in place. However, if that loan is ever defaulted on in the future you could be liable (even if it is the smaller loan with no guarantee) because you violated the terms of the EIDL agreement. I have only heard of the SBA allowing a buyer to assume an EIDL loan once, and in that case the business was struggling and the seller was not getting anything paid out, so the SBA saw the new operator as saving the business. Everyone I have talked to has been denied by the SBA when requesting an assignment of the EIDL loan if they were getting anything paid out at time of sale as the SBA wants the debt repaid. This analysis is based on my experience and direct feedback from both lenders, customers, and the SBA. I hope this helps.