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For Your Business: Should You Consider Small Loans from the SBA?

The SBA can help advance such entrepreneurs small loans to give their firms a chance at thriving again. But you will have to sign a personal guarantee.

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For Your Business: Should You Consider Small Loans from the SBA?

Financial troubles often arise in small businesses, but the SBA may be able to help. Should you consider small loans? We'll clarify here.

Small Loans

One-quarter of all small business owners are unable to access the funding they need to keep their companies afloat. For such entrepreneurs, this is akin to a death sentence for their organizations.

Small loans for businesses in the infancy stages of operations are critical in helping them weather torrential waters.

Even though entrepreneurs get into business knowing it carries a lot of risks and challenges, a lack of adequate funding can stall even the best of them.

If your small business is facing financial headwinds here are some instances where a Small Business Administration (SBA) loan can give you a reprieve.

An Unplanned Partner Buyout

Life can throw unexpected curves your way. Imagine waking up one day and getting a notice that your business partner wants out. Although you had not seen it coming, you are now on the hook for their stake to retain ownership.

Such a turn of events can put pressure on your firm and its finances if it does not have a strong enough balance sheet. An SBA loan can help you navigate these unforeseen waters.

In the past, getting an SBA loan to buy out a partner was quite tricky. In the eyes of the SBA, a buyout via stock or partnership interest meant that the accounting requirement would leave the firm with a negative equity position.

As a result, an existing partner required a massive infusion of capital to qualify for an SBA loan to buy a partner out.

The New Rules

In 2018 the SBA adopted the Standard Operating Procedures 50 10 5(J). The new policy now made a partner buyout more realistic.

It updated the rules so that one could qualify for a loan to buy out a partner if this left the firm's balance sheet with a minimum equity position after the sale.

The minimum equity position post-sale now has to be at least 10% of the firm's total assets.

If you need to buy out your partner, you can now do so without an equity injection. There are however two qualifications you will need for this to happen:

  • The continuing partner will need to have actively been engaged in the business for more than two years
  • The business must have a debt-to-net-worth ratio not exceeding 9:1 before the sale

In case these two conditions are not met, the partner who wants to make the purchase needs at least ten percent equity to qualify.

Consider an SBA loan if you need to unexpectedly partner buyout, and you don't have enough personal finances for it.

Reducing the High Cost of Debt Financing

Debt financing for small businesses` can be a useful tool in catalyzing growth. It can help your firm tap into resources that it didn't have to increase its scope of operation and ultimately revenue.

But when circumstances lead to a downturn in your firm's finances, then the previously affordable interest rates might become unaffordable.

Unless you find a way to staunch the bleeding your business might suffer irreparable damage.

The SBA through its 7(a) loan program can help you refinance your high-interest loan by giving you a lower interest one. Despite its availability, this type of SBA loan can take more time than expected to process.

If you determine that your small business needs to refinance for lower interest payments it is best you apply in good time.

The 7(a) SBA loan is processed through specialized lenders, banks and credit unions that partner with the SBA. You should, therefore, prepare for a higher degree of due diligence from these third-party providers before getting the loan.

When You Need to Extend Your Financing Runway

When a small business is in its infancy, the founder might have some cash to bankroll its operations. As time goes by however the founder's resources might be stretched thin just as the firm is beginning to hit its stride.

To sustain the momentum the business has generated, you might have to seek outside funding. SBA loans are uniquely suited to companies in such scenarios.

A relatively lower cost SBA loan can help you extend the finance runway for your business beyond what you have in hand. Such a reprieve might make the difference between blooming and shrinking.

One of the most famous examples of the SBA coming to the aid of such a business is with the athletic apparel firm Under Armour.

Founded over 20 years ago Under Armour started in the founder Kevin Plank's grandmother's basement. By 1996, Kevin had helped the fledgling firm generate $17,000 via its first team sale.

The SBA then gave Under Armour a loan that helped keep the firm going beyond what the cash in its coffers could deliver.

Needless to say that extra lifeline helped make a big difference leading to its present-day multinational and multi-billion-dollar company status.

In the face of small beginnings, the SBA through its loan programs can help keep your small business going for greater success.

Recovering from a Natural Disaster

Whenever natural disasters strike, businesses across different sectors, suffer due to the interruption in their operations.

More than just interruptions, small businesses may not have the financial capacity to support their disaster recovery efforts. The SBA seeks to give small companies facing disaster recovery financial challenges a helping hand.

Through its disaster loans program, The SBA finances up to $2 million to aid in recovery efforts. Unlike its other loan programs, the SBA directly processes these kinds of loans.

These funds can be applied in repairing or replacing mission-critical assets affected by the disaster. The funding can also go to building up the capital pool of the firm to sustainably resume operations.

Small Loans Can Save Your Business But Beware of the Personal Guarantee and Collateral Conditions

Many small business owners grapple with finding adequate funding to run their businesses sustainably.

Not having the necessary financial resources stacks the odds against small firms. The SBA can help advance such entrepreneurs small loans to give their firms a chance at thriving again.

But you will have to sign a personal guarantee.  This means that if your business defaults, the SBA will hold you personally liable for the debt.  Moreover, the SBA may require that you pledge your personal home as collateral for the loan.

At Protect Law Group we can help if you do default on an SBA due to unforeseen circumstances. Contact us today to have our experienced team help you assess your SBA loan default situation.

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 personally guaranteed an 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.



Clients personally guaranteed SBA 7(a) loan balance of over $300,000.  Clients also pledged their homes as additional collateral.  SBA OIC accepted $87,000 with the full lien release against the home.

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