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.Book a Consultation Call
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.
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.
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.
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.
Clients personally guaranteed SBA 504 loan balance of $337,000. The Third Party Lender had obtained a Judgment against the clients. We represented clients before the SBA and negotiated an SBA OIC that was accepted for $30,000.
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.
Client personally guaranteed SBA 7(a) loan balance of $58,000. Client received Notice of Intent to initiate Administrative Wage Garnishment (AWG) Proceedings. We represented client at the Hearing and successfully defeated the AWG Order based on several legal and equitable grounds.