Someone recently asked us a series of questions about what happens if you default on an SBA loan. Here are our answers from Lendio’s president, Levi King:
What is an SBA Loan?
SBA loans are loans to small businesses that are unable to get a business loan through normal lending channels with reasonable terms. The program operates through private-sector lenders that provide business loans, which are guaranteed by the Small Business Administration (SBA).
Are SBA loans always personally guaranteed?
Yes on the vast majority of SBA loans. The only rare exception would be businesses with tons of collateral, lots of time in business, and super clean financials.
Who collects defaulted loans, the lender or the government, or both?
The lender collects. The SBA just guarantees the loan to the bank. The lender collects what they can, and then they can make an insurance claim for the percentage of the loan covered under the insurance, but not recovered by their collection efforts.
What is the collection process like for defaulted SBA loans?
Just like any other bad business debt that is personally guaranteed, first they’ll foreclose on any collateral that was put up to secure the loan, then they’ll sue the business for default, then they’ll sue the guarantor(s) for default, and they’ll get a judgment against the business, guarantor(s) or both.
What might borrowers expect?
Depends on each state’s laws, but in general they will face 25% wage garnishment, they can intercept any dividends paid out of corporations the individual has ownership in (even other businesses), they can seize bank accounts, and other physical property collateralized by the loan and/or awarded in a judgment.
Can SBA loans be discharged in bankruptcy?
Yes. Once you’ve Bankrupt out of one SBA loan, you can’t get approved for another one.
Are there restrictions on what types of SBA loans can or cannot be discharged?
No restrictions other than the normal bankrupt restrictions placed on any type of business situation.
Can business owners negotiate settlements on SBA loans?
Yes, just like any other type of debt that goes delinquent.
How can you negotiate settlements on SBA loans?
Go 90+ days late on the loan, and either negotiate directly with the lender or use an attorney. You will be 1099′d for the forgiven debt and probably barred from SBA loans in the future (if the SBA suffered a loss).
Hi, my name is Nancy delos Reyes. We have SBA loan with Bank of America. Since our business sales went down 2 years ago I have hard time paying my SBA loan payment every month. I have been late paying my loan since May 2011. I have try to do settlement with the bank but they don’t accept our offer. I am afraid of lawsuit and loosing my business or assets. Please give me some opinion what to do.
Thanks,
Nancy delos Reyes
email: myjazzbass@sbcglobal.net
Hello, Can the sba garnish wages in the state of Texas.?
I had an SBA loan (w/ my ex-husband) in 2007. I overpaid each month and in 2011 decided to restructure my business (divorced in 2009, ex still on loan docs). Contacted the bank who said I could defer to interest only for 3-6 months if paperwork was filled out by both parties. I filled mine out and submitted, ex SAID he did same. Received no statements from bank, so assumed (my fault – ass out of you & me) that everything was fine. Get ready to make payment in Oct (deferment started. In Mar) and saw that the bank had pulled $32,000 out of my accnts! No judgment, no court date. My ex never turned in the paperwork, so I was in default. But $32,000? How can they take that money (including money from 2 trust accnts) with no notice to me? And I was in that bank at least 2 x per week, and no one ever said, hey – you need to pay your SBA loan. Is it legal to just remove $$ from an account w/ no judgment?
Wow, Sherry. That’s an awful story. I can’t speak for the bank’s policies, but it’s more than worth looking into further. Hope you can get this taken care of.
Hi Sherry, this is a very difficult situation that you are going through. Send me an email and I will guide you in the right direction. All we do is work with defaulted SBA loans, personal guarantees, and debt settlements.
I had a Partner in a C Corportation 50/50 I left the corp in 2007- With a 48 page legal document signed by the boss of us – With everything he was liable for including the SBA loan he stop paying and claim bankruptcy they cam after me 3 years latter and took money from ,me. What do i do? Long was with bank of America.
Anthony, sorry to hear about your situation. Every SBA loan is different. You should probably talk to someone like Ryan above who has commented on this thread for debt settlement.
Where are you located? are you a debtor-creditor attorney? do you know someone who could help me with a situation similar to
Sherry’s but in North Carolina?
Karen you can send me an email or call me anytime. I do SBA debt settlements and workouts everyday here at Bridge Management for defaulted businesses. Ryan@BridgeMgt.com. Don’t hesitate to ask any questions.
Every defaulted SBA loan is different. Depending on the local banker, state, Personal guarantees, etc. All we do here at BMC is deal with defaulted SBA loans, personal guarantee and lien negotiations, and debt settlement. Feel Free to email me any ask any questions. Ryan@BridgeMgt.com
We had a small business loan and the bank liened all our property, including personal home and rental house. We had to file Chapter 7 personally because of securing our business debt. We have been discharged for several years but the liens remain. The bank was repaid their 25% of the business loan by sale of our business property. The SBA guaranteed the 75%. Is there any possibility of getting the liens removed?
Yes Sandra, the liens can be removed. Unfortunately even with Bankruptcy you are still obligated to repay the SBA debt according to the Personal guarantee which is why they still have a lien on your home. We do debt settlements like that on a daily basis with the SBA, and every situation is different. Feel free to message me. Ryan@BridgeMgt.com
I have an SBA disaster loan from Huricane Katrina. I have been separated from my husband for over 2 years. Our home was foreclosed on in Feb. 2010 by the mortgage company. My husband refuses to give me a divorce so I have decided to move on with my life. I have been renting for over 2 years now and am ready to buy a home for my children and myself. Everything has been going well on the mortgage paperwork until a Cavirs was run and it came up with a default on the SBA loan. My husband is being garnished by the SBA and has been working on a payment plan with. So can I get the Cavirs removed so that I can continues with the process of buying a home?
Hello,
I had an SBA loan from 2005 to 2008. The property securing part of the loan was surrendered and the loan was discharged in bankruptcy in 2008, however, I am getting contacted by a law firm that is trying collect the balance of the loan. How can they try to collect on the debt when it was discharged? It seems so strange that this would happen this long after the discharge. Thank you for your help!
Hi Lorie,
Unfortunately your situation is like many others that I deal with on a daily basis. In your situation the SBA got a portion of the balance from the foreclosure on the business and the real estate involved. However you are still Personally Guaranteed for the remaining balance. You need to do what is called an “OIC” Offer in Compromise. You do not want to get into wage garnishment or sweeping of personal accounts by the US Department of Treasury. Send me an Email Ryan@BridgeMgt.com