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What to expect when you default on your SBA loan?

What to expect when you default on your SBA loan?

Failure to Pay: Material Default

Small business owners face unprecedented times in this covid-19 economy.  Many businesses have 2 major expenses to service every month: (1) SBA loan and (2) Commercial lease.

A material default occurs when the small business is not able to pay the agreed-upon monthly principal and interest payment.  After several missed payments (typically 60-90 days), the SBA participating lender (if it is 7(a) loan) or Certified Development Corporation (if it is a 504 loan), will come knocking and contact you asking “where’s the monthly payment?”

Many small business owners will respond to their lender and request some time or try to modify their payment schedules.  But some will just bury their head in the sand and avoid responding to their bank.  It is better to respond to your bank as opposed to ignoring the problem.  What you don’t want is for your SBA loan to be placed in “liquidation” status and transferred to the bank’s Special Assets Department (SAD).

SBA Loan Deferment

In the covid-19 economy, most SBA 7(a) lenders offer loss mitigation relief measures.  Some lenders offer internal deferment.  Deferment typically involves deferring or postponing the monthly principal payment due and allowing small businesses to pay interest only.  The postponed monthly principal payments are then tacked onto the end of the original amortized payment schedule.  Other lenders place the loan in the SBA CARES Act’s Small Business Debt Relief Program.  Here, the SBA makes the principal and interest payments to the SBA lender on behalf of the business for six (6) consecutive months.

The Short Leash

If you are placed into a Deferment or the Small Business Debt Relief Program, this is your opportunity to pivot your business and come up with creative ideas to generate revenue while your payments on the SBA loan are temporarily postponed.  Rest assured, however, that your bank will keep you on a short leash and may require monthly updates.

Problem Banks

Some banks may not offer Deferment or placement into the Small Business Debt Relief Program.  If your bank is not offering these loss mitigation measures, you need to find out why.  It could be because you don’t qualify for these programs or that the bank simply wants to cut its losses and liquidate collateral that has been voluntarily pledged as security for the SBA loan.  This collateral could be commercial real estate, residential real estate, bank or investment accounts, certificate of deposits or business, property and equipment.

Potential Solutions

If confronted with a situation where the bank will not assist you, you should consult with an experienced SBA attorney to discuss your options and come up with a game plan to counter the bank’s actions.  Some options may include negotiating with the SBA lender directly, seeking assistance from the SBA and requesting that it mediate the impasse between you and the SBA lender or exploring arbitration or litigation based on lender liability theories and allegations.

Don’t Try to Resolve SBA Loan Issues without Professional Help

Don’t try to resolve SBA loan default issues by yourself. Speak to an SBA Attorney with Protect Law Group.

Protect Law Group has proven, nationwide experience resolving SBA loan problems.

Owe more than $30,000? Contact Protect Law Group for an SBA loan case evaluation or call us toll-free at 1-888-756-9969.

We can analyze your SBA loan problems and advise you on potential solutions.

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