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How to Release Your Personal Guarantee on an SBA Loan

Learn how to release your personal guarantee on an SBA loan by exploring options like loan assumption, asset sales, and SBA loan modifications to protect your assets.

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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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Take Control of Your SBA Loan Obligations Today

Are you feeling overwhelmed by the weight of a personal guarantee on your SBA loan? Protect Law Group is here to help. With a team of experienced SBA Attorneys and Federal Agency Practitioners, we specialize in guiding business owners through the complexities of SBA loan challenges. Whether you're exploring options like loan assumptions, asset sales, or SBA loan modifications, our experts provide tailored solutions to help you navigate these critical decisions. Contact us today at (833) 428-0937 for a case evaluation and take the first step toward financial relief and peace of mind.

Frequently Asked Questions

What is a personal guarantee on an SBA loan?

A personal guarantee on an SBA loan is a legal promise made by business owners to repay the loan if their business cannot. It provides lenders with an additional level of security and ensures that the borrower is personally liable for the loan repayment.

Why do lenders require personal guarantees for SBA loans?

Lenders require personal guarantees to mitigate risk. Since small businesses can be unpredictable, a personal guarantee offers lenders assurance that they have a secondary line of recourse if the business fails to meet its loan obligations.

What are the implications of signing a personal guarantee?

Signing a personal guarantee means that your personal assets, such as your house, savings, and other property, are at risk if your business defaults on the loan. This can have significant financial consequences for your personal life.

What options are available to release a personal guarantee on an SBA loan?

Options to release a personal guarantee include loan assumption, where a third party takes over the loan; selling business assets and settling the remaining balance through an SBA Offer in Compromise; or pursuing an SBA loan modification to adjust loan terms and potentially stabilize the business.

What are the consequences of not honoring a personal guarantee?

Failing to honor a personal guarantee can lead to legal action by the lender, referral of the debt to the U.S. Treasury for collection, wage garnishment, and damage to your personal credit score, which can affect your future borrowing capacity.

How can business owners proactively manage financial challenges tied to personal guarantees?

Business owners can proactively manage challenges by communicating with lenders early, seeking professional advice from financial advisors or SBA loan default attorneys, and exploring debt relief options such as SBA programs designed to restructure repayment terms.

$750,000 SBA 7A LOAN – NEGOTIATED WORKOUT AGREEMENT

$750,000 SBA 7A LOAN – NEGOTIATED WORKOUT AGREEMENT

Client’s small business obtained an SBA 7(a) loan for $750,000.  She and her husband signed personal guarantees exposing all of their non-exempt income and assets. With just 18 months left on the maturity date and payment on the remaining balance, the Great Recession of 2008 hit, which ultimately caused the business to fail and default on the loan terms. The 7(a) lender accelerated and sent a demand for full payment of the remaining loan balance.  The SBA lender’s note allowed for a default interest rate of about 7% per year. In response to the lender's aggressive collection action, Client's husband filed for Chapter 7 bankruptcy in an attempt to protect against their personal assets. However, his bankruptcy discharge did not relieve the Client's personal guarantee liability for the SBA debt. The SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection against the Client to the SBA. The Client then received the SBA Official 60-Day Notice. After conducting a Case Evaluation with her, she then hired the Firm to respond and negotiate on her behalf with just 34 days left before the impending referral to Treasury. The Client wanted to dispute the SBA’s alleged debt balance as stated in the 60-Day Notice by claiming the 7(a) lender failed to liquidate business collateral in a commercially reasonable manner - which if done properly - proceeds would have paid back the entire debt balance.  However, due to time constraints, waivers contained in the SBA loan instruments, including the fact the Client was not able to inspect the SBA's records for investigation purposes before the remaining deadline, Client agreed to submit a Structured Workout for the alleged balance in response to the Official 60-Day Notice as she was not eligible for an Offer in Compromise (OIC) because of equity in non-exempt income and assets. After back and forth negotiations, the SBA Loan Specialist approved the Workout proposal, reducing the Client's purported liability by nearly $142,142.27 in accrued interest, and statutory collection fees. Without the Firm's intervention and subsequent approval of the Workout proposal, the Client's debt amount (with accrued interest, Treasury's statutory collection fee and Treasury's interest based on the Current Value of Funds Rate (CVFR) would have been nearly $291,030.

$750,000 SBA 504 LOAN - NEGOTIATED TERM REPAYMENT AGREEMENT

$750,000 SBA 504 LOAN - NEGOTIATED TERM REPAYMENT AGREEMENT

Clients personally guaranteed SBA 504 loan balance of $750,000.  Clients also pledged the business’s equipment/inventory and their home as additional collateral.  Clients had agreed to a voluntary sale of their home to pay down the balance.  We intervened and rejected the proposed home sale.  Instead, we negotiated an acceptable term repayment agreement and release of lien on the home.

$1,500,000 SBA COVID-EIDL LOAN - SBA OHA LITIGATION

$1,500,000 SBA COVID-EIDL LOAN - SBA OHA LITIGATION

Small business and guarantors obtained an SBA COVID-EIDL loan for $1,000,000. Clients defaulted causing SBA to charge-off the loan, accelerate the balance and refer the debt to Treasury's Bureau of Fiscal Service for collection. Treasury added nearly $500,000 in collection fees totaling $1,500,000. Clients were served with the SBA's Official 60-Day Notice and exercised the Repayment option by applying for the SBA’s Hardship Accommodation Plan. However, their application was summarily rejected by the SBA without providing any meaningful reasons. Clients hired the Firm to represent them against the SBA, Treasury and a Private Collection Agency.  After securing government records through discovery, we filed an Appeals Petition with the SBA Office of Hearings & Appeals (OHA) court challenging the SBA's referral of the debt to Treasury. During litigation and before the OHA court issued a final Decision and Order, the Firm successfully negotiated a reinstatement and recall of the loan back to the SBA, a modification of the original repayment terms, termination of Treasury's enforced collection and removal of the statutory collection fees.

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