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Can't Pay Your SBA Loan? Here's What to Expect

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.

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Can't Pay Your SBA Loan? Here's What to Expect

In 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

What Happens if You Can't Pay Your SBA Loan Installments?

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.

Your Loan Will Go Into Default

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.

Your Lender Will Initiate 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.

Your Business Assets Will Be Seized and Liquidated

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.

The SBA Will Initiate Collections

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 US Treasury Department Will Initiate Collections

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.

How to Avoid the Consequences of Defaulting on Your SBA Loan

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.

Get in Touch With Your Lender

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.

Propose an Offer in Compromise

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.

Let an SBA Attorney Help With Your SBA Loan

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.

Why Hire Us to Help You with Your Treasury or SBA Debt Problems?

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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

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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

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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.



The client personally guaranteed an SBA 7(a) loan for $150,000. His business revenue decreased significantly causing default and an accelerated balance of $143,000. The client received the SBA's Official 60-day notice with the debt scheduled for referral to the Treasury’s Bureau of Fiscal Service for aggressive collection in less than 26 days. We were hired to represent him, respond to the SBA's Official 60-day notice, and prevent enforced collection by the Treasury and the Department of Justice. We successfully negotiated a structured workout with an extended maturity date that included a reduction of the 14% interest rate and removal of substantial collection fees (30% of the loan balance), effectively saving the client over $242,000.



Clients personally guaranteed an SBA 7(a) loan that was referred to the Department of Treasury for collection.  Treasury claimed our clients owed over $220,000 once it added its statutory collection fees and interest.  We were able to negotiate a significant reduction of the total claimed amount from $220,000 to $119,000, saving the clients over $100,000 by arguing for a waiver of the statutory 28%-30% administrative fees and costs.



Small business sole proprietor obtained an SBA COVID-EIDL loan for $500,000. Client defaulted causing SBA to charge-off the loan, accelerate the balance and refer the debt to Treasury's Bureau of Fiscal Service for aggressive collection. Treasury added $180,000 in collection fees totaling $680,000+. Client tried to negotiate with Treasury but was only offered a 3-year or 10-year repayment plan. Client hired the Firm to represent before the SBA, Treasury and a Private Collection Agency.  After securing government records through discovery and reviewing them, we filed an Appeals Petition with the SBA Office of Hearings & Appeals (OHA) court challenging the SBA's referral of the debt to Treasury citing a host of purported violations. The Firm was able to negotiate a reinstatement and recall of the loan back to the SBA, participation in the Hardship Accommodation Plan, termination of Treasury's enforced collection and removal of the statutory collection fees.

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