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.
Book a Consultation CallIn 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
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.
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.
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.
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.
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 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.
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.
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.
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.
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.
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
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
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.
Our firm successfully facilitated the SBA settlement of a COVID-19 Economic Injury Disaster Loan (EIDL) where 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.
Client personally guaranteed an SBA 7(a) loan for $100,000 from the lender. The SBA loan went into early default in 2006 less than 12 months from disbursement. The SBA paid the 7(a) guaranty monies to the lender and subsequently acquired the deficiency balance of about $96,000, including the right to collect against the guarantor. However, the SBA sent the Official 60-Day Due Process Notice to the Client's defunct business address instead of his personal residence, which he never received. As a result, the debt was transferred to Treasury's Bureau of Fiscal Service where substantial collection fees were assessed, including accrued interest per the promissory note. Treasury eventually referred the debt to a Private Collection Agency (PCA) - Pioneer Credit Recovery, Inc. Pioneer sent a demand letter claiming a debt balance of almost $310,000 - a shocking 223% increase from the original loan amount assigned to the SBA. Client's social security disability benefits were seized through the Treasury Offset Program (TOP). Client hired the Firm to represent him as the debt continued to snowball despite seizure of his social security benefits and federal tax refunds as the involuntary payments were first applied to Treasury's collection fees, then to accrued interest with minimal allocation to the SBA principal balance.
We initially submitted a Cross-Servicing Dispute (CSD) challenging the referral of the debt to Treasury based on the defective notice sent to the defunct business address. Despite overwhelming evidence proving a violation of the Client's Due Process rights, the SBA still rejected the CSD. As a result, an Appeals Petition was filed with the SBA Office of Hearings & Appeals (OHA) Court challenging the SBA decision and its certification the debt was legally enforceable in the amount claimed. After several months of litigation before the SBA OHA Court, our Firm Attorney successfully negotiated an Offer in Compromise (OIC) Term Workout with the SBA Supervising Trial Attorney for $82,000 spread over a term of 74 months at a significantly reduced interest rate saving the Client an estimated $241,000 in Treasury collection fees, accrued interest (contract interest rate and Current Value of Funds Rate (CVFR)), and the PCA contingency fee.
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.
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