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Worried about not being able to make your SBA loan payments? Don't risk losing your assets, consult with our SBA loan default attorneys today.
Book a Consultation CallIn 2020, the Small Business Administration (SBA) approved more than 42,000 loans worth nearly $23 billion altogether. Were you one of the businesses that qualified for the funds?
With the coronavirus pandemic still in full swing, many small businesses are struggling to turn a profit. So if you're worried about making your SBA loan payments, you aren't alone.
Failing to make payments on any loan can result in a default and, ultimately, poor credit marks. However, the consequences of defaulting on an SBA loan are even more severe.
What are the consequences of defaulting and what can you do to avoid them? We're guiding you through the answers to each of these questions next. You better keep reading because this one's for you.
SBA Loan
If you can't make your SBA loan payments, you won't just be in trouble with your lender. The SBA will get involved and, when you still can't pay your debt, they'll transfer your account to the US Department of the Treasury. Once there, your account may be placed in the hands of a private collection agency.
If your business credit is destroyed because you were unable to repay the SBA loan, it will be difficult to obtain any other type of lending for your company.
Here are all the details about what happens when you can't pay your SBA loan installments.
If you stop paying on your loan, it will go into default. Defaulting on an SBA loan can have serious consequences for your business and personal finances. It's best to address any financial difficulties early on and explore all options for repayment to avoid defaulting on your loan. The amount of time you have to pay before defaulting depends on the terms of your SBA loan contract. Though, in general, you will have between 90–120 days to resume payments.
During this grace period, lenders may be willing to work with you. As long as you stay in touch with your lender, you may be able to work out an alternative repayment scheme to pay back what you owe.
What happens if you don't pay what you owe within this period of grace? Your lender will attempt to recover the debt through collections.
Once the loan default grace period is up, your lender will hand over your account to collectors. It's at this point that lenders will usually be unwilling to work with you and will start seizing your business assets. If you pledged personal assets, those may be at risk as well.
When your defaulted loan goes to collections, your lender will recoup the debt. They'll start by seizing the collateral you secured your loan against. In many cases, that means taking control of your business assets.
After your lender seizes your assets, they'll liquidate them. In other words, your lender will put your assets up for sale.
Sometimes the sale of your business assets alone isn't enough to cover what you owe. If you signed a personal guarantee agreement for your SBA loan, that means the lender can go after your personal assets next.
If liquidating your business and personal assets isn't enough, your lender will file a claim with the SBA. The SBA guarantees all partner lenders 50% to 80% of the loan, even if you don't pay.
In case of default, the SBA will pay up to 85% of the loan amount. Though the amount they actually pay your lender will be 85% of the loan minus the debt recovered from selling your assets.
Once your lender files a claim, the SBA will send you a demand letter. Demand letters typically specify that you must pay what you owe on your loan within 60 days.
If you still haven't paid within these 60 days, the SBA will turn over your account to the US Department of the Treasury.
The final step after you default on your SBA loan is for the US Treasury Department to collect what you owe.
The Department of the Treasury will use garnishments to recuperate the loss. That means they can seize your income, tax refunds, social security savings, or even your retirement benefits.
The most foolproof way to avoid defaulting on your SBA loan is to make your payments on time, in full, every month.
As long as you pay your monthly installments along with any interest or fees, you won't have to stress about going through the default process.
Of course, this isn't always possible. Here are two ways to avoid having your defaulted loan sent to the Treasury Department.
The most important thing not to do when it comes to your SBA loan is to stop contact with your lender. Lenders are willing to work with you. Often, they may offer you new repayment terms that fit with your financial situation.
Remember: the last thing banks want to do is waste time and money seizing your assets. They're much more likely to help you pay them back, especially if you're upfront, honest, and proactive about your situation.
Even if your lender seizes your assets, there are options to help you avoid US Treasury garnishments. Guarantors, after liquidation of assets, can file an Offer in Compromise
An Offer in Compromise is a request to have a portion of your debt forgiven. If approved, the amount you owe to the SBA will be wiped clean. Whether you're approved depends on the state of your business finances.
If the SBA rejects your Offer in Compromise, they may allow you to revise it and resubmit a new one. Or you can avoid getting rejected in the first place by hiring an SBA loan default attorney.
Don't want to lose your business and personal assets? Then make your SBA loan payments. If you can't, you risk additional consequences like the garnishment of your wages by the US Treasury.
Need help winning your SBA loan default case? We're here to help. Schedule a consultation with the lawyers at SBA Attorney now to find out what we can do for you.
Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure
Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements
Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.
Clients borrowed and personally guaranteed an SBA 7(a) loan. Clients defaulted on the SBA loan and were sued in federal district court for breach of contract. The SBA lender demanded the Client pledge several personal real estate properties as collateral to reinstate and secure the defaulted SBA loan. We were subsequently hired to intervene and aggressively defend the lawsuit. After several months of litigation, our attorneys negotiated a reinstatement of the SBA loan and a structured workout that did not involve any liens against the Client's personal real estate holdings.
Clients executed personal and corporate guarantees for an SBA 7(a) loan from a Preferred Lender Provider (PLP). The borrower corporation defaulted on the loan exposing all collateral pledged by the Clients. The SBA subsequently acquired the loan balance from the PLP, including the right to collect against all guarantors. The SBA sent the Official Pre-Referral Notice to the guarantors giving them sixty (60) days to either pay the outstanding balance in full, negotiate a Repayment (Offer in Compromise (OIC) or Structured Workout (SW)), challenge their alleged guarantor liability or file a Request for Hearing (Appeals Petition) with the SBA Office of Hearings & Appeals.
Because the Clients were not financially eligible for an OIC, they opted for Structured Workout negotiations directly with the SBA before the debt was transferred to the Bureau of Fiscal Service, a division of the U.S. Department of Treasury for enforced collection.
The Firm was hired to negotiate a global Workout Agreement directly with the SBA to resolve the personal and corporate guarantees. After submitting the Structured Workout proposal, the assigned SBA Loan Specialist approved the requested terms in under ten (10) days without any lengthy back and forth negotiations.
The favorable terms of the Workout included an extended maturity at an affordable principal amount, along with a significantly reduced interest rate saving the Clients approximately $181,000 in administrative fees, penalties and interest (contract interest rate and Current Value of Funds Rate (CVFR)) as authorized by 31 U.S.C. § 3717(e) had the SBA loan been transferred to BFS.
Clients obtained an SBA 7(a) loan for their small business in the amount of $298,000. They pledged their primary residence and personal guarantees as direct collateral for the loan. The business failed, the lender was paid the 7(a) guaranty money and the debt was assigned to the SBA. Clients received the Official 60-Day Notice giving them a couple of options to resolve the debt balance directly with the SBA before referral to Treasury's Bureau of Fiscal Service. The risk of referral to Treasury would add nearly $95,000 to the SBA principal loan balance. With the default interest rate at 7.5%, the amount of money to pay toward interest was projected at $198,600. Clients hired the Firm with only 4 days left to respond to the 60-Day due process notice. Because the clients were not eligible for an Offer in Compromise (OIC) due to the significant equity in their home and the SBA lien encumbering it, the Firm Attorneys proposed a Structured Workout to resolve the SBA debt. After back and forth negotiations, the SBA Loan Specialist assigned to the case approved the Workout terms which prevented potential foreclosure of their home, but also saved the clients approximately $294,000 over the agreed-upon Workout term with a waiver of all contractual and statutory administrative fees, collection costs, penalties, and interest.
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