EIDL and Collateral: Your Questions Answered


Owen Yin


Reviewed by


October 26, 2021

This article is Tax Professional approved


The Economic Injury Disaster Loan (EIDL) program is once again accepting applications. If your business needs extra capital and has been negatively impacted by COVID-19, the EIDL is by far the best loan you can get.

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However, there’s been a lot of confusion on the EIDL’s collateral requirements. Here’s what we know about EIDL collateral based on SBA presentations, operating procedures, and FAQs.

If you have specific questions about your EIDL, we recommend contacting the SBA.

What is collateral, exactly?

Collateral refers to things (assets) your business owns that are pledged to a lender as a form of deposit on a loan. If for some reason your business is unable to repay the loan, the ownership of the assets will pass from your business to the lender.

For example, if your car is posted as collateral, then the SBA can claim ownership of your car if you can’t make the loan payments.

What loan amounts require collateral?

EIDL loans under $25,000 are considered “unsecured” and do not require any collateral. EIDL loans over $25,000 will require collateral.

The SBA secures collateral by filing a blanket UCC-1 lien on your business. A handling charge of $100 will be applied in order to file the lien with the appropriate government agencies. For loan amounts greater than $500,000, the borrower will be responsible for recording the real estate lien and paying the associated fees.

What is a UCC-1 lien?

A Universal Commercial Code (UCC-1) lien is a legal notice that publicly states that a lender or creditor (in this case, the SBA) has an interest in your business’s assets. The lien is a blanket statement that will apply to all business assets, including inventory, equipment, and bank accounts.

Is it bad to have a lien?

Not necessarily. Liens are a common occurrence for businesses that have taken on a loan to support their business operations. A lien protects the interests of the lender—after all, they do want their funds back. If you had refused a lien and defaulted on your loan, the SBA would just need to sue you and obtain a levy (legal process of taking ownership of property) on your assets instead, requiring extra work for everyone.

And since the lender here is the government, the lien also protects taxpayers from fraudulent loans. A lien prevents business owners from simply taking the EIDL, closing the business, and starting a brand-new company.

Is it okay to have more than one lien?

Yes, having multiple liens on a business is fine.

When will a personal guarantee be required?

In addition to the UCC-1 lien, personal guarantees are required for loan amounts greater than $200,000. A personal guarantee is an agreement to be personally liable for the loan if the business defaults.

What if I don’t have enough collateral?

The SBA will not deny a loan solely for not having sufficient collateral. You’ll need to pledge whatever collateral you do have available.

The SBA has publicly committed to make reasonable efforts to work with you to come to a favorable decision, taking into account the impacts of COVID-19.

Other COVID-19 resources

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.
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