Personal Loans

What To Do If You Can’t Make Your SBA Loan Payments

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Across the country, many business owners are fighting not only to keep the doors to their businesses open, but to keep up with payments on their business debts. Falling behind on an SBA loan can be particularly scary because it may be one of the largest debts the business owes, and because these loans often involve personal guarantees and collateral.

Here’s what you need to know if you’ve taken out an SBA loan and can’t keep up with the payments.

Because SBA loans are guaranteed by the federal government, misconceptions about the collection process abound. “There are a lot of people who have this fantasy that the government is going to pay it so they can just try again next time, but that’s wrong,” warns Charles H. Green, director of the Small Business Finance Institute.

In most cases, if you fall behind, you’ll be working with the bank where you obtained the loan, and not the SBA itself. “The SBA will not come knocking on your door,” says Denise Beeson, a commercial loan officer at Baysierra Financial. Green agrees, adding that “The SBA used to do all liquidations, but that’s moved to preferred lenders. SBA is pretty much just in the business of doing accounting and letting the bank work it out.”

A personal guarantee is required on “the vast majority of SBA loans,” says Lendio president Levi King. “The only rare exception would be businesses with tons of collateral, lots of time in business, and super clean financials.” That means the lender may be able to look to the borrower’s personal assets, as well as business assets, to try to collect.

In addition, many borrowers pledge either personal or business property as collateral. If you pledged collateral for the loan “they may actually seize your collateral,” warns Beeson. Before the lender tries to do that, however, it may be willing to work something out. Green points out that the banks are often less interested in trying to repossess heavy or specialized equipment, which will then have to be disposed of in a timely fashion, than they are in trying to recover as much as possible of the defaulted loan.

Typically, the collection process begins as soon as you miss a payment, says Green. Once the loan becomes 60 – 120 days delinquent, collection efforts intensify. The lender may declare the loan in default and request the guarantee from the government, but it will still try to collect as much of the balance as possible.

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  • Jerry Chautin

    Levi King, president of Lendio says that there are rare situations when SBA will not require personal guarantees. That is not so. SBA always requires personal guarantees. Furthermore, anyone who own 20 percent or more of the business, also signs personally.

    Jerry Chautin
    Business/real estate columnist
    Former commercial mortgage banker, business lender, entrepreneur

    • http://www.lendio.com Levi King

      I’ll disagree with Jerry based on personal experience. I’ve been approved for two SBA loans (that I accepted). One was with BBVA Compass Bank and DID require a personal guarantee, however, the other was with Silver State Bank and did NOT require a personal guarantee. Unfortunately the FDIC took over Silver State Bank a couple years ago and my loan was purchased by a private equity firm. The loan was an SBA 7a loan for 150k that started as a LOC and later converted to a term loan.

  • http://www.zipdebt.com Charles Phelan

    A very helpful article for small business owners, Gerri. One point I’d like to add is that many consumers mistakenly go the other way, and assume that SBA loans are like Federal Student Loans, which cannot be settled or discharged in bankruptcy. It’s definitely possible in many cases to work out a settlement on SBA loans, with 50% being a common result. To obtain this result, it’s necessary to document the financial problems of the business and demonstrate that the relief is necessary. But people should be aware that this option does exist.

    • http://www.credit.com Gerri

      Good to know. I’d be interested in hearing more about your client’s experiences with this. How long does it usually take to achieve a settlement on an SBA loan?

  • Roger

    Check out ibank.com and plurafinancial.com, both are free to join…all the other sites I tried charged a fee and had good reviews. The SBA required a PG every time I applied. Have never heard of an SBA lender that didn’t require one. Call any legitimate SBA lender and they will tell you the same.

  • Roger

    Clarification on my last comment, ibank and plurafinancial were both free and had good reviews, whereas all the others I checked out charged a fee

  • jamie

    i have a SBA loan that I can not pay, I have not paid on it in a year,I really need to move forward. I do have a lien on property, and they did take my tax return last year. i think they would work with me bz i called and ask what can be done about this.So they said that I CAN JUST PICK UP MY PAYMENTS AGAIN. I would but can’t affort them. lost my bussiness and the property that has the lien is not worth what the mortage is or the SBA loan. Where do I start?

  • http://franchiseloanworkouts.com John Homan, J.D.

    Jamie, I wish you had contacted me earlier. You are in a VERY DANGEROUS SITUATION! I am an attorney and have been since 1977. Our company has been dealing with borrowers struggling with SBA loans for more than 30 years. We resolve SBA loans every day.

    There is a program to resolve your SBA loan, but not dealing with the loan and getting it resolved is going to get you into a VERY UGLY situation with the U.S. Department of Treasury. While we can get your loan eliminated for pennies on the dollar, we can only do so by actively working with the bank as described below. Failing to do that will result in the bank going to the SBA to be paid off on the guarantee. Then, if you are not working with the SBA when that happens, the Treasury Department gets involved and they are a brutal collection agency. It is full of young lawyers trying to make names for themselves. They will repossess cars that have no equity, sell your home and in general make your life hell!!! But if someone that knows what they are doing handles it correctly, none of that will happen!!!

    You see, in nearly every case we can settle these loans without you being sued and, in nearly every case, without any damage to your personal credit score. When the loan was made, it was not made to you, but rather to your company…. That is the LLC or corporation that actually owns your business. You guaranteed the loan, but you are NOT personally on the loan documents. The bank did not make the loan because it was so excited about your business, but because the SBA guaranteed to reimburse the bank 70% to 90% of the unpaid balance should your business be unable to repay the loan.

    The only requirement that the bank has to get paid by the SBA is that the assets securing the loan be sold. There is no requirement that they sue you, take your house or anything else. If you hire experts in this field, like our firm, we work with the bank to get the assets sold and get the bank paid off by the SBA. At the same time, we present the SBA with what is called an “Offer-In-Compromise”. This is basically an explanation of your situation and a personal financial statement. And for most people today, with real estate prices down, it is easy to show that, even if the SBA were to sue you, they would not collect much of what is owed.

    We routinely settle these claims for less than $.10 on the dollar. We get your personal guarantee removed and the liens released on your property. And because the loan was made to your company and not to you, it will not affect your personal credit score. And contrary to what is said above, you will not get a 1099 for the amount of debt that was not repaid. You will be barred from getting another SBA loan, but that is it. You will be free to move on with your life!!!

    Your comment is awaiting moderation.

    • Sara

      Do you help settle SBA loans that have already been farmed out to Treasury’s collection agency, specifically Pioneer Credit Recovery? If so, what is success rate and how much do you settle for, ie, .10/dollar? thx.

    • mitu

      how do i contact attorney?

    • Carl Lindblad

      I have an SBA loan for $210,000 for a property that is worth at least $30,000 less than that. My tenant will go out of business in mid-December and the rental market is no where near my PITI. If I engage your services, what would be the fee, and how would you proceed?
      thank you
      Carl Lindblad

    • sha

      How do I get in touch with you or your company. I have an SBA loan now moved from treasury to pioneer credit recovery for 132K.
      Thank you.

    • bryan rhodes

      i would be very interested in talking to you. I’m in the state of Texas

  • kathy

    Mr. Horman~ after 10month of jumping thru hops finally got sba disaster loan approval. It is for my hurricaine ravaged home no business involvement. The rub is that the 4 yr repayment of $580/ month in undoable. Can this be renegotiated? do i renegotiate before or after signing? Don’t want to sign if cant pay- don’t want to turn down funds needed to repair damage. thank you

  • Robin

    I closed my flower shop Dec. 31, 2009. I had an SBA loan through my local bank and they knew everything that was going on. I was having trouble making payments due to the economy had finally hit here in MT and really hit me hard about June. The bank was great, they made it to where I had a lower payment and was only making the interest payment to hopefully help me out. I was afraid to go into 2010 as I still had some debt trying to catch up on and I had no money for Valentine’s Day and I had already put enough money out of pocket into the shop to try and keep it going. I never was able to pay myself a wage. I closed my shop and sold all of the contents to another Vendor in Idaho. It wasn’t much but got me caught up on all of the shops debt except about $900 and the SBA loan (all I owned was what was inside my shop to run it day to day, no real estate). I did not repay myself. The bank knew everything that was going on and what I was doing. The bank knew I wouldn’t be able to make the payments any more. My husband is self employed and the business comes first them he gets a paycheck so sometimes we go with out and I have been substituting at the local schools whenever they need me (we have 3 teenage sons and they eat alot).

    The bank and I have gone back and forth with being in contact. They have one guy who is handling all of the loan issues (specializes in SBA), he was suppose to be there for a year and it has been over 3. At first I was told just to wait, no big deal, he had his hands full with others that were more priority or the client was nagging at them to do something and I am easy going so no big deal. I did finally sit down with him and talk about my finances and what we were going to do. My Yukon is the only collateral they have (I still have it). He said that with my situation financially that he would put in that I will have a hard time repaying the loan and that the SBA would basically cover the majority of it but I would still be liable for a small amout of the loan and that he would also recommend that I be able to keep the Yukon free and clear (not worth but maybe $4000). They would let me know what was going on. I never heard anything more. Last Oct. my Tabs were up on the Yukon and I can now get Perm. plates but didn’t want to pay for anything if they are going to be taking it. I got ahold of them and after calling several times they told me it was fine and to not worry about it go ahead and get my tabs. Time once again has passed and the last couple of months they have contacted me again about doing another financial statement and meeting with them. I finally got in to see him a couple of days ago. Now the story has changed, we went over my financials and I am in the 45% range of DIR(?) and that means I am unlikely to be able to repay with payments at this time (really hadn’t changed). He said that unfortunately the SBA will not cover any of my loan now because the bank screwed up and didn’t document my inventory/closing. So now he wants to know what or if I think I can feasably pay each month otherwise he will propably have to procees with the default. THe couldn’t tell me what the amount of my loan was or the interest due to their computers being down but would call me. He said he would also see what he could possibly do to reduce some of it as well. He got back to me yesterday and it is the same loan amount that I was owing and almost $6,000 for interest!! He did not reduce it at all!!

    What now? I haven’t worried about this loan too much and have been slowly trying to take care of our personal debt but am still struggling month to month. I am pretty sure I can swing some sort of small payment (hopefully) but I am almost 100% certain we may be late here and there depending. The banker even asked if we had looked at bankruptcy? I told him I had looked into it a little but my husband does NOT want to do it as well as the SBA loan may not be covered and it is marginal on our income and repayment to do bankruptcy. For the original loan and now they have the information for both my husband and I but I am the only one whom has signed the papers and that is named on them (before closing). I am afraid they may come after our house in the end if needed (I am not on the title). Can he not offer me a lower reduced loan now that they/he screwed up when I closed? We have been with this bank for 14 years and they have always been great, no problems what so ever as well as we have gotten to know some of them on a personal level as well and this is who my husband uses for his business and I don’t want to make any bad waves. Yes, I do owe the debt but when I originally did the loan I understood things differently and then all of the communications with them until this last one were all different and that they would work with me no problems and forgive some of the debt!! Do I offer to let them take the Yukon for a small fraction of what I owe?? If anyone has any good advice or knows of good questions I can ask him please let me know. I know he is looking out for the banks interest but originally he said he would work with me and they have been great, I closed in Dec. 2009 and haven’t made and payments but on the other hand, I have kept in contact with them it has just been the majority of their time inconvenient for them to meet with me due to being overwhelmed with other customers.

    • Gerri Detweiler

      Robin –

      I do think you need to at least talk with a bankruptcy attorney. That doesn’t mean you’ll need to file but you need to know all your options, including what property or assets may be at risk if the bank decides to pursue this. I understand you don’t want to file but you need to understand your position legally. Hopefully it won’t come to that since it sounds like your husband is dead set against it, but if it does you want to make sure you haven’t made any major mistakes in the meantime. Having the facts will also help you in your negotiations with the bank.

  • Michelle Halbrook

    I accepted an SBA loan in ’05 after Hurricane Katrina hit and I did not qualify for FEMA. my original loan was for 30,000, and I managed to make payments for years. A little over a year ago I had a job change and fell on hard times and fell behind on my payments. I attempted to make arrangements with the SBA but the representative would never call me back, and kept being handed off when I called. I am now being harassed by a collection agency called ConServe and have added an extra $7000 to the total remainder. I don’t own any businesses, a house, etc. I have had a lawyer friend look over my paper work and stated that the SBA broke the contract by selling it off and I don’t have to repay them. How true this is I am not sure. Im don’t know what to do or how to fix this but i am not interested in paying the extra thousands of dollars in fees. I am a college student working retail and don’t have that sort of income. Any advice on what to do would be much appreciated. Thanks!

    • Gerri Detweiler

      Thanks for sharing your story, Michelle. I’d suggest you next talk with a bankruptcy attorney familiar with SBA loans to see if you can work something out to settle it or if you need to consider filing for bankruptcy.

  • Tom Krow

    John,

    Closed my business in March 2011, had an SBA loan for 30,000 which is now 36,000 with interest and penalties. Was just served with papers on Monday and have 30 days to respond due to living in Florida now and being served by New York. My house and car loans are joint with my wife. Have never filed for bankruptcy, but with my debt may have no choice. Do you still think it is possible to negotiate this for pennies on the dollar or is it too late?

    Thanks,
    Tom Krow

    • Gerri Detweiler

      Tom – I would encourage you to talk with a bankruptcy attorney in your area as soon as possible. The attorney may be able to help you negotiate if that’s an option. But I would say that at this point legal advice is crucial.

  • James Roos

    Road Home and SBA was a joke after Katrina/Rita. Iapplied for oth as the radio said. When going too closing for the SBA loans (home and business), SBA asked if we applied for Road Home, which we did. SBA told us Road Home would reimburse most but not all of the loans. After dealing with the joke of Road Home, we were finally told that if we applied for SBA and were able to get it we became ineligible for Road Home. Make a long story short, we couldn’t make any more payments for SBA loans and our tax returns are taken. 4 years now. I`m fine with that as the loans will be re-paid quicker than the 30 year plan! WRONG! I just called today and we have acquired 15 thousand in interest even though the balance is now WAY below scheduled payment! INCREDIBLE! I am contacting a bankruptcy attorney. The most disgusting thing about it is knowing how Road Home gave people I know 100`s of thousands for free as well as them collecting on insurance. Yeap, the saying stands true still in America, “the least deservant get rewarded”. Work my ass of and barely make it. Landrieu got a bill passed to release people over paid by Road Home from having to pay back. As a business owner I learned that once you get in the system, your screwed!

  • Diana

    me and my husband received a disaster loan from SBA after the April 27th Tornado destroyed our home. When we fell 3 months behind on payments they immediately sent it to the Treasury Department and they demanded the full amount, tried to expain to them if I had the full amount it would have been paid with the sba, the best they would do was divide up the 40,000 amount in to 3 payments which was completely ridiculous, they then sent the loan to Proformant who did better but had us making payments that were still ridiculous, I tried making the payments but have not been able to keep them up, I now fear it is going back to the Treasury department. they withheld our tax returns last year which was fine, gets it paid down but we are now worried they will start cutting it out of my husbands check and we are currently struggling to survive on what he is making right now, we never have enough and constantly worry about power being cut off, or not having food for our boys. I am not sure exactly what I can do at this point but something has to be done. We just can’t afford an attorney and we hate to file bankruptcy for the one problem. If anyone has some advice that would be great appreciated. I have seen where someone else was able to just pick back up his original sba payments and that would actually be our ideal solution as well as them continuing to withhold our income tax until paid but not sure whom I can talk with to have this accomplished. HELP

    • Nancy Ferrazza

      There are many ways to handle a delinquent disaster loan. The most important thing to do, however, is contact the Treasury Department and let them know that you intend to pay the loan, but have recently fallen on hard times. Make a good faith small payment and ask them for some time. Also, an Offer in Compromise is something you an ask them about.

  • Pat Seguin

    My business is in tax trouble because of back payroll taxes. We paid a good portion of them by selling equipment but one of the pieces of equipment, which I thought was paid off, was still being leased by the bank (not sure if SBA backed). My tax resolution accountant advised it was better to pay the IRS and not be shut down so the bank gets something. He said the bank would be more interested in us staying in operation and getting them paid. I continued to pay on the lease for the past year and they gave me an abatement on 3 other loans. We may be looking at bankruptcy and I am very scared of what will happen because we (my brother and partner) sold that piece of equipment that technically belonged to the bank. Do we face jail time because of this or will the bank just aggressively go after repayment regardless if we personally go bankrupt or not? We still have a loan and 2 lines of credit (which were converted to term loans) and I’m am fairly certain they are SBA backed. It’s my understanding that the IRS and state get their money first and then I’m not sure what happens with the loans. My biggest fear in this situation is the ramification of selling that equipment and if I (we) could go to jail for what we did. Remaining assets could be sold to pay that lease and some of the taxes.

    • http://www.Credit.com/ Gerri Detweiler

      Pat – I wish I could help you but at this stage you need to be talking with a bankruptcy attorney. The attorney can help you sort through what your options are at this point. Hoping things work out for you.

  • Tywanna

    I also have a SBA loan for 50,000 and I have paid on time for two years. I just cant continue to pay on it. How do I get in contact with you for help?

    • http://www.Credit.com/ Gerri Detweiler

      Tywanna – not sure who you are trying to get in touch with but I would encourage you to talk with a bankruptcy attorney for legal advice.

  • Angie

    We have a $50,000 SBA Loan that we still one $20, 000 on. We have fallen behind and been contacted by the banks attorney. The SBA site shows our loan as “Paid in full”. The attorney says this has no bearing on the loan. We have told them we are willing to work this out, but I don’t want to pay for something if the bank already has their $ ! How do we know for sure ? Can you offer some advise?

    • http://www.Credit.com/ Gerri Detweiler

      It may be that the government paid the lender under the guarantee, but that doesn’t mean you don’t still owe anything. If you aren’t sure, you’ll want to talk with a consumer law attorney familiar with SBA loans.

  • http://www.Credit.com/ Gerri Detweiler

    I am sorry I have no idea – you’d have to consult with an attorney locally.

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