How to Release Your Personal Guarantee on an SBA Loan

Have You Ever Wondered About Personal Guarantees on SBA Loans?

Protect Law Group specializes in assisting individuals and businesses with SBA loan challenges. If you own at least 20% of a business financed by an SBA loan, you may already understand the commitment involved. A personal guarantee means pledging to repay the lender—and possibly the government—if your business defaults. This responsibility is significant, but there are ways to potentially release yourself from this obligation if your business faces financial instability.

Understanding Personal Guarantees

A personal guarantee is a legal promise by business owners to repay an SBA loan if the business cannot. It provides lenders with additional security and is often a necessary step to secure financing.

Why Personal Guarantees Are Required

Lenders require personal guarantees to mitigate risk. Small businesses can be unpredictable, and a personal guarantee offers lenders a secondary recourse if the business fails to meet its obligations.

The Implications of Personal Guarantees

Accepting a personal guarantee puts your personal assets—such as your home, savings, and other property—at risk if the business defaults. Understanding these stakes is crucial before committing to a personal guarantee.

Options for Releasing Personal Guarantees

Protect Law Group offers solutions for those seeking to release personal guarantees. Here are some options:

Loan Assumption

A third party may assume your business and the associated SBA loan, potentially releasing your personal guarantee. This requires lender approval and negotiation.

Sale of Business Assets

Selling business assets to a third party for fair value can allow you to settle the remaining balance through an SBA Offer in Compromise. This process can relieve debts and obligations tied to the personal guarantee.

SBA Loan Modification

Modifying your SBA loan terms can rejuvenate your business. Adjustments to the balance, payment terms, or interest rate can provide relief and reduce the threat of personal liability.

Consequences of Not Honoring the Guarantee

Failing to uphold a personal guarantee can lead to severe consequences:

• Legal Action: Lenders may sue to recover unpaid debt.
• Treasury Involvement: The SBA may refer your debt to the U.S. Treasury, leading to wage garnishment or administrative offsets.
• Credit Impact: Defaults and legal actions can damage your credit score, affecting future borrowing capacity.

Proactive Measures for Business Owners

Protect Law Group emphasizes the importance of being proactive if financial trouble arises. Early action can prevent default and open discussions with lenders.

Communication with Lenders

Contacting your lender early can lead to solutions or guidance. Presenting a clear financial picture may encourage lenders to work out terms to avoid default.

Seeking Professional Advice

Consulting financial advisors or SBA loan default attorneys can provide insights and alternatives. Protect Law Group’s experienced attorneys can guide you through policies and procedures to manage obligations.

Exploring Debt Relief Options

Your business may qualify for SBA debt relief programs. These programs can reduce financial burdens and restructure repayment terms, offering significant relief.

Navigating the SBA Collections Process

If default is unavoidable, understanding the SBA collections process can help you prepare and make informed decisions.

Initial Steps in Collections

The process begins with lender notifications about missed payments, offering opportunities to negotiate new terms or payment plans.

The Role of the U.S. Treasury

If the lender charges off your debt, it may be transferred to the U.S. Treasury for collection. This can result in administrative actions like offsetting tax refunds or federal payments.

The Bottom Line

Protect Law Group is dedicated to helping clients navigate the complexities of SBA loans and personal guarantees. By staying informed, communicating with lenders, and seeking professional guidance, you can protect your business and personal interests. Whether through modifications, assumptions, or asset sales, understanding your options empowers you to make sound financial decisions aligned with your goals.

Contact Protect Law Group at (833) 428-0937 for personalized support and case evaluations.

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