Turning down $40K of SBA loan

I submitted a request for $20k to the SBA under the EIDL program a few months back.

Then they offered me $80k a few weeks ago.

I completed the application for $40k recently.

Then, when they approved it, and I read the only-now-available fine print and…today I decline.

3.75% is a good rate for a 30-year loan. My payments would be $195/month. But the strings that come attached, the additional reporting requirements and collateral rules, the crazy bait & switch risks I can only now see, and the chance that I may well close my business soon anyway, they all pointed toward turning this down.

As I posted the other day, I just took a full-time employee position for the first time in over 20 years. This assistance is appreciated, but it’s really too late. I was trying to market my business a new way (that failed) and had a 6-month runway for finances that just happened to run out right as the pandemic kicked in. So I’ve already had to borrow against my 401k and strip down my business to its online studs to make rent. Not that I’m complaining, mind you, LOTS of people have it way worse than me!

That’s also kind of the point though. Lots of businesses have it way worse than me. I can close mine and not kick anyone into poverty by doing so. I can get another job. I don’t have to struggle to keep my doors open, because they’ve always been virtual doors anyway. I can just virtually open some other ones whenever I want, perhaps even from another jurisdiction (like Panama where I’m a legal resident, Estonia where I’m an e-resident, or under act 20 in Puerto Rico — the biggest tax haven & legal tax loophole in the USA). But if I accept the loan being offered, I cannot relocate my business (which also happens to be my home) without the express and advanced permission of the SBA. So I can’t move anytime for the next 30 years unless they say I can move, or else I become “civilly liable to the Administrator in an amount equal to one- and-one half times the original principal amount of the loan”. Huh. Fortunately, I’m not that desperate.

Things get scary sometimes, and this has been a scary time indeed. But I’m creative and I’ve been building creative options my whole life, so I’ll be okay.

I know too many people who are that desperate and likely won’t be okay, though. Even with government assistance, all my musician and actor friends, everyone I know in hospitality, even the organic farmers who catered to the restaurant business, they’re all out of work with no way back in to pay down their mounting debts anytime soon. Many of them will be taking the money I’m turning down and still not be able to survive.

…And this is something that is really worrisome. Because the way this money was originally offered, it looked like if you tried to make your business work and still failed, that you would not be personally liable. But the way that it looks to non-lawyer me reading the fine print now, that is no longer the case?

Or rather it is only the case up to $25K. After that, and again I’m no lawyer (and you should really talk to one!), they run your personal credit, claim your business AND personal assets as collateral, and you are personally liable for the full sum of the loan. I have re-reviewed all the documentation and they didn’t say this anywhere before, no can I reduce my loan request amount at this stage to come in under the threshold like I did originally request.

Not only that, but the loan can be called?!? So if the government one day asks you to pay up all at once, you’re legally supposed to do that. There is no pre-payment penalty, so you can pay it all back early without consequence, but that part looks bi-lateral so they can also ask for it all back early too by at their sole discretion declaring the loan to be in Default — which as you can imagine can have some big consequences!

Keep in mind that if you owe more than $50K cumulatively to the Federal government, they can stop you at the border and confiscate your passport. Yeah, they introduced that law a few years back, and they have already used it on a few people who owe a ton of back taxes. Those fees add up fast too, and can be leveraged punitively on far lesser principal amounts. It doesn’t take much for a $20K surprise to turn into $50K one. That $50K number is not set in stone (or even written directly into the IRS code) either, so who knows how this will be used in the future?

Yes, my business needs the money to stay afloat. But given the freedoms that are at stake and the haphazard way all of this is coming down, I’m gonna pass. Thanks but no thanks. I’d rather close my business altogether, thankyouverymuch.

As we can all plainly see in the world around us, there’s no guarantee of anything these days. So creating even more dependence and handing over even more control to the governing powers of the country of my birth/citizenship seems like a bad plan. I truly hope that my desire for freedom and my patriotism are never at odds, but given the way things are going, I’m not willing to bet on that with $40K, my ability to travel internationally, or my liberty to relocate to another state anytime in the next 30 years.

If you are looking at taking the money the SBA is handing out, PLEASE consult a lawyer and an accountant first! I don’t know what’s true, and no one knows what’s gonna happen. But you need some expert advice before you make things even worse for yourself.