• July 8, 2021
ou Must Read the Fine Print of Any Loan Agreement

ou Must Read the Fine Print of Any Loan Agreement

Millions of small business owners who received a loan through the Economic Injury Disaster Loan (EIDL) program were relieved to get approved for one of these low-rate loans through the Small Business Administration (SBA). But some savvy borrowers who carefully reviewed their loan agreements have balked at what appear to be onerous provisions imposed on borrowers, including confusing and contradictory language about personal guarantees.

The EIDL loan agreement (which you can read in full here) currently states:

“By signing or otherwise authenticating below, each individual and each organization becomes jointly and severally obligated as a Borrower under this Agreement.”

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“The terms are very straightforward and clear: This is a personal guarantee,” observes small business attorney Garrett Sutton, and my co-author of Finance Your Own Business: Get on the Financing Fast Track. He adds, “As well, the note defines a ‘Guarantor’ as meaning ‘Each person or entity that signs a guarantee of payment for this note.’”

This despite the fact that The CARES Act waived the personal guarantee for smaller loans with the following language:

“With respect to a loan made under section 7(b)(2) of the Small Business Act (15 U.S.C. 636(b)(2)) in response to COVID-19 during the covered period, the Administrator shall waive—

“(1) any rules related the personal guarantee on advances and loans of not more than $200,000 during the covered period for all applicants; …”

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