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What Does the Banking Meltdown Mean for SBA Loans

With the meltdown of SVB and Signature banks and other banks teetering it may affect SBA loans in the future and current loans as well.

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What Does the Banking Meltdown Mean for SBA Loans

What Does the Banking Crises Mean for SBA Loans and Borrowers?


With the meltdown of SVB and Signature banks and other banks teetering it may affect SBA loans in the future and current loans as well.


SBA Loan Issues

The current banking crisis can have a significant impact on Small Business Administration (SBA) loans. The SBA is a government agency that provides support to small businesses by offering loans, loan guarantees, and other financial assistance programs. However, SBA loans are typically provided by private banks and other financial institutions that partner with the agency.


If these banks are struggling due to the banking crisis, they may become more hesitant to lend money, including SBA loans, to small businesses. This can result in a reduction in the availability of SBA loans, making it more difficult for small businesses to access the capital they need to survive and grow.


Additionally, the economic downturn caused by the banking crisis may cause some small businesses to default on their existing SBA loans.This could lead to a decrease in the SBA's loan portfolio and an increase in the agency's loan guarantee payments to banks.

Overall, the banking crisis can have a negative impact on the availability and affordability of SBA loans, making it more challenging for small businesses to obtain the funding they need to succeed.


How Might Higher Interest Rates Affect SBA Loans?


Higher interest rates may have several effects on SmallBusiness Administration (SBA) loans:


·     Increase in borrowing costs: Higher interest rates mean that borrowers will have to pay more to borrow money, which will increase the overall cost of SBA loans. This may discourage some businesses from taking out loans, or it may reduce the amount they borrow.

·     Decrease in loan demand: As the cost of borrowing increases, demand for loans may decrease. This may result in fewer businesses seeking SBA loans, which could lead to a reduction in the number of loans issued.

·     Increase in loan default rates: Higher interest rates may make it more difficult for businesses to repay their loans. As a result, default rates may increase, which could lead to greater losses for lenders and the SBA.

·     Changes in loan terms: Higher interest rates may prompt lenders to change the terms of SBA loans, such as by requiring higher collateral or increasing the size of down payments seeking the maximum protection under SBA rules. This could make it more difficult for some businesses to qualify for loans.


Overall, higher interest rates can make it more difficult and expensive for businesses to obtain SBA loans, which could have a negative impact on small business growth and economic activity.

Has There Been an Increase in The Rate of Defaults On SBALoans?

The Small Business Administration (SBA) regularly releases data on the performance of its loan programs.


According to the SBA's FY 2021 Annual Report, the overall default rate for SBA loans in FY 2021 was 2.24%, which is down from 2.45% in FY2020. However, it's important to note that this data only goes up until the end of the fiscal year, which is September 30, 2021.


It's possible that the default rate may have increased sincet hen due to ongoing economic conditions and the impact of the COVID-19 pandemic on small businesses. However, without more recent data, it's difficult to say for sure.


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If you have defaulted on your SBA loan, contact Protect LawGroup today.  


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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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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.



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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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