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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.

$150,000 SBA COVID EIDL - OFFER IN COMPROMISE & RELEASE OF COLLATERAL

$150,000 SBA COVID EIDL - OFFER IN COMPROMISE & RELEASE OF COLLATERAL

Our firm successfully facilitated the SBA settlement of a COVID-19 Economic Injury Disaster Loan (EIDL) f borrower received an SBA disaster loan of $150,000, but due to the severe economic impact of the COVID-19 pandemic, the business was unable to recover.

Despite the borrower’s efforts to maintain operations, shutdowns and restrictions significantly reduced the customer base and revenue, making continued operations unsustainable. After a thorough business closure review, we negotiated with the SBA, securing a resolution where the borrower paid only $6,015 to release the collateral, with no further financial liability for the owner/officer.

This case demonstrates how businesses affected by the pandemic can navigate SBA loan settlements effectively. If your business is struggling with an SBA EIDL loan, we specialize in SBA Offer in Compromise (SBA OIC) solutions to help close outstanding debts while minimizing financial burden.

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$150,000 SBA 7A LOAN – NEGOTIATED WORKOUT AGREEMENT

$150,000 SBA 7A LOAN – NEGOTIATED WORKOUT AGREEMENT

Client’s small business obtained an SBA 7(a) loan for $150,000.  He and his wife signed personal guarantees and pledged their home as collateral. The SBA loan went into default, the term or maturity date was accelerated and demand for payment of the entire amount claimed was made.  The SBA lender’s note gave it the right to adjust the default interest rate from 7.25% to 18% per annum. The business filed for Chapter 11 bankruptcy but was dismissed after 3 years due to its inability to continue with payments under the plan. Clients wanted to file for Chapter 7 bankruptcy, which would have been a mistake as their home had significant equity to repay the SBA loan balance in full as the Trustee would likely seize and sell the home to repay the secured and unsecured creditors. However, the SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection to the SBA. Clients then received the SBA Official 60-Day Notice and hired the Firm to respond to it and negotiate on their behalf. Clients disputed the SBA’s alleged balance of $148,000, as several payments made to the SBA lender during the Chapter 11 reorganization were not accounted for. To challenge the SBA’s claimed debt balance, the Firm Attorneys initiated expedited discovery to obtain government records. SBA records disclosed the true amount owed was about $97,000. Moreover, because the Clients’ home had significant equity, they were not eligible for an Offer in Compromise or an immediate Release of Lien for Consideration, despite being incorrectly advised by non-attorney consulting companies that they were. Instead, our Firm Attorneys recommended a Workout of $97,000 spread over a lengthy term and a waiver of the applicable interest rate making the monthly payment affordable. After back and forth negotiations, SBA approved the Workout proposal, thereby saving the home from imminent foreclosure and reducing the Clients' liability by nearly $81,000 in incorrect principal balance, accrued interest, and statutory collection fees.

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$150,000 SBA 7A LOAN - NEGOTIATED STRUCTURED WORKOUT AGREEMENT

$150,000 SBA 7A LOAN - NEGOTIATED STRUCTURED WORKOUT AGREEMENT

Client personally guaranteed SBA 7(a) loan for $150,000. COVID-19 caused the business to fail, and the loan went into default with a balance of $133,000. Client initially hired a non-attorney consultant to negotiate an OIC. The SBA summarily rejected the ineligible OIC and the debt was referred to Treasury’sBureau of Fiscal Service for enforced collection in the debt amount of $195,000. We were hired to intervene and initiated discovery for SBA and Fiscal Service records. We were able to recall the case from Fiscal Service back to the SBA. We then negotiated a structured workout with favorable terms that saves the client approximately $198,000 over the agreed-upon workout term by waiving contractual and statutory administrative fees, collection costs, penalties, and interest.

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