Arizona SBA Loan Default Attorney
An SBA loan is a loan issued to a small business by a bank that is guaranteed by the Small Business Administration. The guarantee essentially acts as insurance for the lender that made the loan, ensuring that they will get paid back if there is a default. This is an important distinction because many people mistakenly believe the government is the lender – it is not. For all practical purposes, you will be dealing with a privately owned bank as your lender.
One of the reasons small businesses like SBA loans is that they often come with more favorable interest rates and terms that would ordinarily not be available on the open market. In order to qualify for an SBA loan, you must jump through several hoops and of course the SBA must approve the loan.
What Happens When an SBA Loan Goes Into Default?
Unfortunately, in recent years, the rate of SBA loan defaults has increased dramatically. Because of economic conditions, many small business owners find themselves buried in debt struggling to stay in business or closing the doors altogether. So what happens when you can’t make your SBA loan payments?
At first, defaulting on an SBA loan will be much like defaulting on any other loan. The bank will start contacting you asking for payment. Eventually, if non-payment continues, the bank will seek to collect on its collateral. This could include your business equipment, real estate, even your home if you used a mortgage beyond the homestead exemption limits. You can expect this seizure of collateral to be fairly aggressive because the SBA requires the lender to take all appropriate steps to collect as much of the debt as it can before tendering a claim to the SBA for the balance. And if the U.S. Treasury receives your account to begin collection activity, things could get really difficult.
Of course, there will likely be debt remaining even after collateral is seized. So what happens next?
Personal Guarantees on SBA Loans
On almost all SBA loans, the borrower will be required to sign a personal guarantee. That means that even though the borrower may be doing business as an LLC (limited liability company) or other corporate structure, the bank will still require the individual to sign a personal guarantee. This puts all of your personal assets in play in the event of a default.
You have a couple of options at this point.
Resolving and Settling SBA Loan Debt
First, if you qualify and if it is appropriate, you could file for bankruptcy protection. But those are two big “ifs”. For a variety of reasons, many people do not qualify for bankruptcy. Plus, there are huge negatives to filing bankruptcy. Under a Chapter 7 bankruptcy, which is a liquidation, you may still end up losing many of your personal assets that are not exempt under the bankruptcy laws. Under a Chapter 13 bankruptcy, it could take up to 5 years and you will likely have to pay back most of the debt anyway. And, of course, bankruptcy will stay on your credit record for up to 10 years.
For these reasons and others, bankruptcy should be an absolute last resort.
The other option, and for many people the best option, is an attorney negotiated debt settlement. This is what our firm does well. We perform a comprehensive debt analysis and develop a plan to settle your debts for a fraction of the balance claimed by the creditors. And we do this without bankruptcy.
The SBA has a special process for resolving residual SBA loan debt called an Offer in Compromise. We deal directly with your SBA loan lender to put together a comprehensive and persuasive Offer in Compromise and negotiate a settlement of the debt. We have decades of experience helping clients resolve debt issues.
Call today for a free consultation and get started resolving your SBA loan debt so that you can move forward.