Many times you may want or need to substitute collateral securing your SBA guaranteed loan. You need to follow the proper steps or risk an SBA loan default if the substitution is not approved. This video provides further information about substituting collateral.
The collateral offered in substitution should be similar in nature (e.g., real property for real property) or provide a higher level of confidence (e.g., a certificate of deposit for an account receivable), and have a recoverable value that is equal to or greater than the recoverable value of the existing collateral based on an appraisal that meets the appraisal requirements of the SBA.
There should be no more than a nominal increase (i.e., 3.5% or less) in the amount of any proposed senior lien;
You must have a satisfactory credit history;
Your current financial statement should reflect that you have the ability to pay all of your obligations that will be outstanding after the substitution;
You should have sufficient equity in the collateral to adequately secure the SBA loan after the proposed substitution;
The release and substitution must not impair the ability to foreclose upon the remainder of the collateral or collect the loan balance; and
The release of the existing lien(s) or proceeds from the release must occur at the same time as the recording of the new lien(s) in the required position of priority and done pursuant to an escrow agreement signed by all of the parties involved in the transaction.
If your personal residence has been pledged as collateral, requests to substitute a lien on a new residence in exchange for releasing the lien on the existing residence are subject to the following additional requirements:
a. All of the proceeds from the sale of the your existing residence, other than the funds needed to pay off senior liens and necessary, reasonable and customary closing costs, must be used to purchase the new residence, placed in an escrow account to facilitate the purchase of a new residence, or used to pay down the SBA loan;
b. The amount of equity in the new residence available to secure the SBA loan must be the same as or greater than the amount of equity in the existing residence available to secure the SBA loan; The release of the existing lien, or proceeds from the release, must happen at the same time as the recording of the new lien in the required position of priority and should be done pursuant to an escrow agreement signed by all of the parties involved in the transaction; and
d. You must provide the title, hazard and flood insurance.
If you are facing an SBA loan default, contact Protect Law Group today at www.sba-attorneys.com or 1-888-756-9969 to schedule your FREE initial consultation.
We will analyze your SBA loan problems and advise you on potential solutions such as an SBA offer in compromise for your SBA loan default.