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

If your SBA loan is placed in default, here's what to expect. Take a look at these tips on assistance and recovery and how to avoid it if all possible.

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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. But the consequences for 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.

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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.

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. 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.



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.



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.



Client personally guaranteed SBA 7(a) loan for $350,000. The small business failed but because of the personal guarantee liability, the client continued to pay the monthly principal & interest out-of-pocket draining his savings. Client hired a local attorney but quickly realized that he was not familiar with SBA-backed loans or their standard operating procedures. Our firm was subsequently hired after the client received the SBA's official 60-day notice. After back-and-forth negotiations, we were able to convince the SBA to reinstate the loan, retract the acceleration of the outstanding balance, modify the original terms, and approve a structured workout reducing the interest rate from 7.75% to 0% and extending the maturity date for a longer period to make the monthly payments affordable. In conclusion, not only we were able to help the client avoid litigation and bankruptcy, but we also save him approximately $227,945 over the term of the workout.

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