How the Federal Government Shutdown Affects SBA Loan Borrowers and Guarantors
Book a Consultation CallWhen headlines announce a federal government shutdown, small business owners and guarantors with SBA loans often ask: “Does this pause my payments or stop collections?” The short answer is no. A shutdown creates administrative delays, but it does not suspend your legal obligations as a borrower or guarantor. At Protect Law Group, we guide clients nationwide through these high-risk situations.
The U.S. Small Business Administration (SBA) relies on annual appropriations for most of its programs. During a lapse in funding:
The Bureau of the Fiscal Service (BFS), part of the U.S. Treasury, is responsible for government-wide debt collection. Its shutdown plan treats debt collection and the Treasury Offset Program (TOP) as “excepted” activities. That means federal loan debts referred to Treasury can still trigger:
Even while SBA is scaled back, Treasury’s enforcement mechanisms remain operational.
For borrowers and personal guarantors, a shutdown means:
If you are a borrower or guarantor:
Q: Do I still have to make my SBA loan payments during a shutdown?
Yes. A government shutdown does not suspend your repayment obligations. Interest and penalties continue to accrue even if SBA staff are furloughed.
Q: Can I apply for a new SBA loan during a shutdown?
No. New 7(a) and 504 loan applications are paused until Congress restores SBA funding. Even lenders with delegated authority cannot approve new loans during the lapse.
Q: What about disaster loans?
SBA disaster loans usually continue, since they are funded separately. However, you may face slower processing times.
Q: Can I request a loan modification, deferment, or reinstatement?
You can submit requests, but most require SBA review. These are considered “non-excepted” functions and will not be processed until the shutdown ends.
Q: Does the government stop collecting on SBA debts during a shutdown?
Not entirely. If your loan has been referred to the Treasury’s Bureau of the Fiscal Service, collections—including tax refund offsets, Social Security offsets, and cross-servicing—will continue.
Q: Will foreclosure or liquidation stop?
Not completely. The SBA can still approve limited liquidation or collateral protection actions if there is risk of “imminent loss” to government assets.
Q: Could the shutdown help me as a guarantor?
In limited ways. You may get a temporary reprieve from new enforcement or settlement negotiations. But once SBA reopens, expect a backlog-driven surge in activity, including possible acceleration of default cases.
Q: What should I do now if I’m behind on payments?
The government shutdown does not cancel SBA debt. It creates delays for new loans and discretionary relief, while Treasury’s collection authority remains live. At Protect Law Group, we help business owners and guarantors use this window strategically—preparing defenses and settlement packages so they are ready the moment SBA reopens.
Contact experienced SBA loan defense attorney immediately.
Our SBA Attorneys have guided thousands of small businesses through reviews, contested or negotiated debts assessed against owners, officers and guarantors, and litigated cases at the SBA Office of Hearings & Appeals (OHA) Court before presiding Administrative Law Judges (ALJs).
Schedule a confidential strategy session today → keep your success story from becoming the next SBA nightmare tale. Contact us at SBA-Attorneys.com for a confidential Case Evaluation.
Sources and links:
This article is provided for informational purposes only and does not constitute legal advice. Consult a qualified SBA-Attorney for advice regarding your individual situation.
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 assisted a client in closing an SBA Disaster Loan tied to a COVID-19 Economic Injury Disaster Loan (EIDL). The borrower obtained an EIDL loan of $153,800, but due to the prolonged economic impact of the COVID-19 pandemic, the business was unable to recover and ultimately closed.
As part of the business closure review and audit, we worked closely with the SBA to negotiate a resolution. The borrower was required to pay only $1,625 to release the remaining collateral, effectively closing the matter without further financial liability for the owner/officer.
This case highlights the importance of strategic negotiations when dealing with SBA settlements, particularly for businesses that have shut down due to unforeseen economic challenges. If you or your business are struggling with SBA loan debt, we focus on SBA Offer in Compromise (SBA OIC) solutions to help settle outstanding obligations efficiently.
Client’s small business obtained an SBA 7(a) loan for $750,000. She and her husband signed personal guarantees exposing all of their non-exempt income and assets. With just 18 months left on the maturity date and payment on the remaining balance, the Great Recession of 2008 hit, which ultimately caused the business to fail and default on the loan terms. The 7(a) lender accelerated and sent a demand for full payment of the remaining loan balance. The SBA lender’s note allowed for a default interest rate of about 7% per year. In response to the lender's aggressive collection action, Client's husband filed for Chapter 7 bankruptcy in an attempt to protect against their personal assets. However, his bankruptcy discharge did not relieve the Client's personal guarantee liability for the SBA debt. The SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection against the Client to the SBA. The Client then received the SBA Official 60-Day Notice. After conducting a Case Evaluation with her, she then hired the Firm to respond and negotiate on her behalf with just 34 days left before the impending referral to Treasury. The Client wanted to dispute the SBA’s alleged debt balance as stated in the 60-Day Notice by claiming the 7(a) lender failed to liquidate business collateral in a commercially reasonable manner - which if done properly - proceeds would have paid back the entire debt balance. However, due to time constraints, waivers contained in the SBA loan instruments, including the fact the Client was not able to inspect the SBA's records for investigation purposes before the remaining deadline, Client agreed to submit a Structured Workout for the alleged balance in response to the Official 60-Day Notice as she was not eligible for an Offer in Compromise (OIC) because of equity in non-exempt income and assets. After back and forth negotiations, the SBA Loan Specialist approved the Workout proposal, reducing the Client's purported liability by nearly $142,142.27 in accrued interest, and statutory collection fees. Without the Firm's intervention and subsequent approval of the Workout proposal, the Client's debt amount (with accrued interest, Treasury's statutory collection fee and Treasury's interest based on the Current Value of Funds Rate (CVFR) would have been nearly $291,030.
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.
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