Are you worried about getting an SBA loan because you're afraid of defaulting? Click here to learn how you can avoid defaulting on your SBA loan payment.
Book a Consultation CallThe U.S. Small Business Association supports businesses with the SBA loan program
The loans don't come from the SBA directly. They help lending partners reduce their risk, which makes it easier for small businesses to get loans.
It's a way to get the capital you need to start or grow your business.
But what happens if you can't make your SBA loan payment?
Loan default is a serious concern for business owners. Fluctuations in your sales can limit cash flow, making it difficult to keep up with your payments.
Keep reading to find out how to avoid defaulting on an SBA loan, whether you already have one or you're considering one.
SBA Loan Payment
It's important to understand what happens when you stop paying your SBA loan payment.
If you miss payments, your loan will likely be considered delinquent. It can be considered delinquent even if you're only a day late.
At this point, your lender might add a late fee to your loan payment.
If you miss multiple payments, the loan might default. Your lender will start taking aggressive action to collect.
The SBA loan agreement allows your lender to force you into selling assets.
Your business assets are up first. Selling your business assets could be devastating, to the point of forcing you to close your business.
Even worse, your personal belongings, including your home, could be sold if you used them as collateral.
The SBA guarantees a portion of the loan, so the lender can file with the SBA to get that portion of the money.
The SBA will then try to collect that money from you. If you don't settle the debt, the Treasury Department takes over. They can garnish your wages and take your future tax returns.
Defaulting on the loan is something you want to avoid if possible.
To avoid defaulting, be realistic with your business funding needs. Look at your business finances to decide how much you can reasonably afford to pay back.
Having a clear picture of your business finances helps with this.
The serious financial consequences of defaulting on an SBA loan are something you should keep in mind when prioritizing your debts. When things get tight, know what you need to pay first.
If you don't pay your SBA loan, you could lose all of your business assets. You won't have a business left.
Prioritizing that payment can help you keep your business afloat, even during difficult financial times.
All businesses go through fluctuations in cash flow. If you're in a difficult financial season, look at your business expenses. Where can you cut back to have more money to go toward your debts?
If you're trying to expand your business quickly, you might stretch your budget too thin. Consider scaling back those expansion plans or now to get caught up on your payments.
Cutting extra services or finding ways to save money on supplies can also help. Look at your biggest expenses to see if you can make changes to reduce them.
If you're having trouble paying your loan, bringing more business into your company is a priority. Increasing sales is the ideal way to do that, but you can't always just increase your income easily.
Liquidating some of your assets, such as equipment, can give extra money. It's not ideal to sell your assets, but you might be forced to do so anyway if you default on your loan.
Doing it on your own gives you more control. If you're forced to sell off your assets, you won't have any control over the matter.
When you get caught up financially, you can focus on growing your business again.
Are you feeling the pinch when it comes to paying back your loan?
Don't wait for your lender to call you. Take the first step by calling your lender to let them know you're in a difficult financial situation.
When you call early, your lender will be more willing to come up with an option that works for both of you. This is especially true if you're experiencing a temporary financial issue with your business.
If you're already delinquent or in default, don't avoid the calls from your lender or the SBA. Avoiding the situation won't make them stop pursuing collections.
Confront the situation head-on. Even if you're already delinquent or nearing default, your lender might work with you.
Your lender might offer you a modified repayment plan to help you get caught up or avoid default. The terms might lean more toward the lender's favor, but it could be a way to avoid the financial ruin of defaulting.
Lenders are often willing to work with borrowers to save money. It's expensive to try to collect on defaulted loans. If they can get some money, even if it's less than your normal payment, they might choose that option.
The SBA will have to approve those modifications since they have a vested interest in the loan.
Make sure you can meet your obligations for the modified repayment plan. If not, you could still face default and further collections.
If you default on your loan and the SBA tries to collect, you have the option of an Offer in Compromise. It's a settlement option that can keep you out of court.
To complete the form, you'll have to give the SBA all of the details on your financial situation. That includes your tax info, income, expenses, asset transfers to other people, and all of your asset details, both personal and business.
If you're facing a default situation, having an experienced SBA attorney can help you get the best possible outcome. An attorney can walk you through the process and help you come up with an Offer in Compromise that gets accepted.
When your SBA loan payment becomes too much, you risk defaulting on the loan, which can have devastating financial effects on your business. Borrowing responsibly and being proactive when hard times hit can help you minimize the financial impact.
Are you facing default on your SBA loan? Learn more about our SBA services to see how we can help you settle your debt.
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.
Client received the SBA's Official 60-Day Notice for a loan that was obtained by her small business in 2001. The SBA loan went into default in 2004 but after hearing nothing from the SBA lender or the SBA for 20 years, out of the blue, she received the SBA's collection due process notice which provided her with only one of four options: (1) repay the entire accelerated balance immediately; (2) negotiate a repayment arrangement; (3) challenge the legal enforceability of the debt with evidence; or (4) request an OHA hearing before a U.S. Administrative Law Judge.
Client hired the Firm to represent her with only 13 days left before the expiration deadline to respond to the SBA's Official 60-Day Notice. The Firm attorneys immediately researched the SBA's Official loan database to obtain information regarding the 7(a) loan. Thereafter, the Firm attorneys conducted legal research and asserted certain affirmative defenses challenging the legal enforceability of the debt. A written response was timely filed to the 60-Day Notice with the SBA subsequently agreeing with the client's affirmative defenses and legal arguments. As a result, the SBA rendered a decision immediately terminating collection of the debt against the client's alleged personal guarantee liability saving her $50,000.
Client personally guaranteed an SBA 7(a) loan for $100,000 from the lender. The SBA loan went into early default in 2006 less than 12 months from disbursement. The SBA paid the 7(a) guaranty monies to the lender and subsequently acquired the deficiency balance of about $96,000, including the right to collect against the guarantor. However, the SBA sent the Official 60-Day Due Process Notice to the Client's defunct business address instead of his personal residence, which he never received. As a result, the debt was transferred to Treasury's Bureau of Fiscal Service where substantial collection fees were assessed, including accrued interest per the promissory note. Treasury eventually referred the debt to a Private Collection Agency (PCA) - Pioneer Credit Recovery, Inc. Pioneer sent a demand letter claiming a debt balance of almost $310,000 - a shocking 223% increase from the original loan amount assigned to the SBA. Client's social security disability benefits were seized through the Treasury Offset Program (TOP). Client hired the Firm to represent him as the debt continued to snowball despite seizure of his social security benefits and federal tax refunds as the involuntary payments were first applied to Treasury's collection fees, then to accrued interest with minimal allocation to the SBA principal balance.
We initially submitted a Cross-Servicing Dispute (CSD) challenging the referral of the debt to Treasury based on the defective notice sent to the defunct business address. Despite overwhelming evidence proving a violation of the Client's Due Process rights, the SBA still rejected the CSD. As a result, an Appeals Petition was filed with the SBA Office of Hearings & Appeals (OHA) Court challenging the SBA decision and its certification the debt was legally enforceable in the amount claimed. After several months of litigation before the SBA OHA Court, our Firm Attorney successfully negotiated an Offer in Compromise (OIC) Term Workout with the SBA Supervising Trial Attorney for $82,000 spread over a term of 74 months at a significantly reduced interest rate saving the Client an estimated $241,000 in Treasury collection fees, accrued interest (contract interest rate and Current Value of Funds Rate (CVFR)), and the PCA contingency fee.
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