There’s no need to feel bad about defaulting on an SBA guaranteed loan, you’re covered!
I’ve talked to many MANY small business owners who’ve entered into SBA guaranteed loans. I’ve represented scores of them in working out defaulted SBA guaranteed loans and I often come up against ‘borrowers remorse’, a condition that most borrowers experience. They feel really bad about not fulfilling their obligation, not satisfying their commitment and defaulting on the loan, breaking their promise to repay.
I have great respect for the belief that we should all fulfill our commitments, honor our word and do what we say we will do.
Sometimes however circumstances beyond ones control forces a small business owner’s dream to fail. An economy that has melted down is one example of circumstances that no individual business owner could have prevented.
Universally I find that small business owners stop at nothing to succeed, including investing every penny they have, borrowing as much as they can from wherever they can, working without taking a pay check, and putting in many many long hours. They do their best to succeed and want nothing more then to be able to pay their obligations, but sometimes they simply come up short.
Now we know that when you go to the bank and ask for help, the answer is basically ‘no deal’. No help, the SBA does not allow adjustment to the terms, the banks are prevented from making any really meaningful modifications. In fact the SBA requires the bank to exhaust their legal remedies to collect and liquidate the collateral to satisfy the note, and unless the bank performs effectively they may lose their SBA guaranty. Thus, when things go wrong, you are in deep trouble with no opportunity to work things out safely.
The most they will do is 3-6 months of interest only payments, no real help at all -if your problem were only that simple. They will then move to liquidate your homes and everything else you own in oder to satisfy their legal requirements.
It’s not a matter of ‘fair’, it IS however what you signed up for and thus it is what it is.
However, there is one aspect that the borrower is seldom reminded of and it is what I consider the equalizer…
Perhaps you do not recall -so let me remind you- that you paid a significant fee for the SBA guaranty. That was a a purchase of INSURANCE. INSURANCE for the bank to receive the guaranty to cover the bank’s losses should you default. So when and if it happens, when circumstances occur that prevent you from paying, you have already paid for the INSURANCE to cover the losses the bank would have experienced.
So why do you feel so bad about being unable to pay? Why destroy yourself and your family’s financial future to honor your word when you have purchased insurance to cover you for such losses? It is seldom the negligence or personal failure, it is typically uncontrollable events. And since everyone involved is aware of the possibility of this business failure happening they require you to purchase protection for the bank.
Despite this business insurance the bank is still required to liquidate your business and personal assets as best as they can in order to claim the insurance payoff.
After the bank has hung you out to dry THEN they put their hand out to the SBA for the guaranty…which you paid for.
The problem is few small business owners know how to navigate through this mine field and emerge safely. The bank will not tell you what is best for you.
Call me for help, there is a path. Call us at 413-584-2581 Norm will arrange a no obligation conference for us to discuss your options and a way to survive.
We had a third SBA FEMA disaster loan on our Hawaii home. About 30K. Home is terribly under water with 1st 350K 2nd 115K and SBA. We went delinquent on the loan for several months expecting a foreclosure. SBA responded with threatening wage garnishment of about 15% of our income. We have no assets but my husband is employed in a city government job and is making a decent income. WE brought our SBA loan current and stopped the garnishment. Now we are trying to get a short sale through. Offer 324K broker price opinion 325K. Short sale approved by our 1st. Waiting to hear from 2nd. SBA says they will release the lien for $. We only have 1K approved from the 1st to offer SBA. QUESTION: If SBA agrees to the short sale what happens to our 30K loan?
Kim, you will then be challenged by the SBA on your personal guaranty, which you can respond with an Offer in Compromise an reduce the debt to affordable losses. Call Norm at my office for some help.
I have a SBA loan that has a balance of 298k personally guaranteed by my wife and myself. IT is also secured by 4 vacant parcels of land from family members. We are in default going on 7 months. We have brought in two management groups that were willing to assume the remaining debt if bank would work out a deal to start making payment as of June/July. The bank would not work with them under the terms needed to get business revenues up and going again. We tried to get offers from larger national chains but no one was biting. Today I received a call from my Banker saying that he received a call from one of the potential investor to purchase the Loan from 100k. He said to them he would accept this. My question is where does this leave me. Will I be sued for the remain 200k balance? What can I do? Call the local SBA department and discuss situation?
I had a corporation that went bankrupt in 2005. We had a small business loan which was not included in our bankruptcy because it had been taken out within 6 months of our filing. We filed because of a bank action that prevented us from operating. At the time we had 23 employees working for us and we could not meet payroll.
The SBA had my personal guarantee on the loan. With the bankruptcy I lost everything and have since had to move in with family. I suffered illness after illness from open heart surgery to losing my ability to walk. I am now on disability with a very small income.
I received a letter from a collection company stating they represented the SBA. They want to know if the company is closed and if I filed bankruptcy. Should I just send off the information requested and wait to see what they may want next? They really cannot get blood from this turnip.
Bev
There is something we can do, of course, give Norm a call, I will talk to him and see if we can help you…413-584-2581…ask for Norm
Hello Don,
I took a 15k loan from sba and have about $11k more to pay. I have defaulted 3 months ago cause I can no longer pay them as my business completely stopped genereating income. I applied on one of the settlement program to hadle this. What risks have I taken and what are the chances that I will be succesful in dealing with them. I was told that my account will soon be forwarded to Treasury Department. What will be the consequences of this to my family and my future?
Sincerely,
Alvin
This is not good. The only reason it was sent to the US Treasury was to collect…when you hear from them call me, we will help.
413-584-2581 ask for Norm.
My husband works for the government, if we default on our SBA business loan can my husband lose his job?
I have heard in some in stances this could happen, however it depends on many factors, such as security clearance issues, which government bureau, etc…. he should ask further. Besides which remember its the business that defaults in an SBA guaranteed loan not the guarantors, you will nt be reported with a credit issue, just the business. Feel free to default. Do your workout.
We have a construction company that is severely affected by the recession. Your description of a small business owner is exact. We have not been paid for over 6 months and have borrowed as much money as we can. We are looking at defaulting on an SBA 504 real estate loan. Not sure what the repercussions would be on my family. If we have to keep paying on the building, we may go out of business, leaving 50 people unemployed. We owe about $550,000 on the 1st TD and $450,000 to the SBA. I’m not sure if the only security is in the office building we have. I literally have 8″ of paperwork on the loans. What paperwork would I look for to see what the security is? The property is in an LLC. If the security is in the property only, we would walk away from the building. The SBA has given us temporary lower payments, the 1st TD has done nothing to help.
Marie,
Norm will call you to set up a teleconference. You signed a personal guaranty so everything you own is collateral for the loan…We have an answer for you. Don
Dear Don,
I defaulted on an $296K SBA loan 2 years ago and started the process of offer & compromise. I took a regular job and keep in touch with my banker. Last year I was laid off and called the bank and let them know i was not working full time and this would affect my ability to pay my offer. I have not heard a word from them nor has it been listed on my credit report. How much time do they have to pursue me for some kind of repayment?
Fret not they will catch up with you, they do not lose the file or forget.
Adjust your offer in compromise ton reglect your current circumstances.
I took out a SBA backed loan 2 1/2 yrs ago for 1.6K Million to buy a building. Guaranteed by business, operating company, myself and my wife. I had sublet the building and then last year my tenant destroyed the inside of the building and left. GE Capital, the lender, had insisted that I pay $25K a year for “all risks” insurance, which was for the building and loss of rent. However insurance company claims that not a covered loss so now in federal court till next year. Anyway, stopped making payments of $12K a month on the loan since could not afford it. I called GE Cap and asked for a workaround in May 2008, a month before I stopped making payments. I was told that the advice they were getting from their higher ups was that to let borrowers defualt since that is what they would be postponing anyway. This week received a summons for not paying the loan. What are my options, and what should I do? Funny that this is the same GE that 3 months later, went to the federal govt itself after getting liquidity problems. I feel like I spent 50$K paying for insurance that GE insisted on and now I am being screwed when it should have kicked in to cover me.
My wife and I personally guarnteed a $50,000.00 SBA September 11 Disaster Loan directly with the SBA. Despite the loan, our business failed later that year, and we’ve been personally on the hook since. We’ve paid the loan down to about $21,000.00 over the past seven years, but with the latest economic downturn, we can’t make the $500 per month payments. I was able to negotiate $75 per month payments for a period of time, but this barely covers the daily interest, and someday I’ll have to start paying the $500 again. I asked the SBA what would happen if we defaulted, and they said that we would be turned over to the Treasury department and the IRS, our children would never be able to get government subsudized student loans, and neither of us would ever be able to work for the government, even if we decalared bankruptcy.
How would SBA loan garuntees (and the insurance we pay for it) figure into all of these consequences? Are the SBA’s threats about the IRS, student loans, and government jobs true?
Have the terrorists really won?
Its not quite that bad…and here is a process for offer and compromise if you qualify, call Norman at my office we have a non-profit division that may be right for you…413-584-2581
I will be defaulting on an SBA Community Loan for $25K I owe about $21K and I can no longer make the loan payments. Due to medical reasons my business has suffered and I will have to close the by months end. What can I do? The bank reduced my payment until January, but I will probably not be in business by then. What’s my next step?
we have a 330,000 sba loan witch we may end up defaulting on we signd on it and have a lien on our house and our other business signed on it as well witch is our only source of income our other business is worth maybe 95000.00 and we owe 37000.00 is their any way to keep our home and business?
L Flach, much can be done for you, to protect both your business and home and reduce the debt significantly, call Norm at 413-584-2581, he will arrange a tele-conference to discuss your issues and provide you with options.
On Sun, Aug 2, 2009 at 6:35 AM, Donald Todrin wrote:
> L Flach, much can be done for you, to protect both your business and home > and reduce the debt significantly, call Norm at 413-584-2581, he will > arrange a tele-conference to discuss your issues and provide you with > options. > >
When you feel that the end is near or eminent, do you talk to the bank when they request a meeting or do you make sure you have knowledgeable support on these matters present? Or, do you just not take their request for a meeting?
you get ready prior to meeting so you have your exit strategy all worked out, have made what ever moves and adjustments that best prepare you and then meet. Preperation and a plan are crucial.
meet, but you need a plan, a strategy as they certainly have an agenda, you need to take control of your destiny, call us we can help, 413-584-2581.
I have an Sba loan with an SBA collateral loan on my home. Any way to get that lien removed from my home?
I have a $250,000 sba loan and am now in default! My business is picking up enough to make my monthly bills and I don’t want to lose it but I am behind on everything! I desperately need help! What do I do?
you should consider calling us for information on a debt workout strategy, read more of he blog there is muc information regarding exactly what is possible o achieve in such circumstances. or call Norm at 413-584-2581 he will arrange a tele-conference for us to disuss your options.
FANTASTIC!
The style of writing is quite familiar . Have you written guest posts for other blogs?
I received an SBA backed expressloan in 2004 through Capital One. A year later I closed my business and dissolved the LLC which included my wife and I as members. I rented so had no real estate to liquidate. Equipment was kept by the landlord for past due rent or liquidated and funds distributed. I then sold my house and paid down whatever I could with regards to debt from the business. never filed for bankruptcy. Original loan was 40K and now owe 17K. I keep trying to pay but it has becoming almost impossible to do so (13% interest). Capital One said too bad. Now I am faced with possibly filing for personal bankruptcy. Can I truly get out from under that SBA loan without repurcussions?
No need for bankruptcy, it will not help you as much as you may think anyways, call Norm at my office 413-549-2966 he will arrange a tele-conference and we will help you figure out a strategy.
I have a business loan with Bank of America for $20,000 guaranteed by the SBA. I owe appx $15K and now am in default. I am in default because over the past few months (Aug, Sep, Oct, Nov and Dec), I made three payments and of the three documented payments, BOA could not trace the payments to my account even though my credit union has the debits from my account. I have tried to work out this issue with BOA over the past few months without success. I asked my credit union to credit my account with any payments that BOA could not find; I rec’d one credit to my account, still cannot trace with BOA the remaining funds. I informed BOA that unitl it can trace and correctly credit my business account, I could not pay any premiums on the loan. Of course, BOA stated that it is my problem and has refused to help, but now wants to call the total amount due and has stated it will seek SBA’s guarantee. I am not sure at this point what to do other than to notify the SBA about my problems with BOA and ask for assistance. If no assistance is provided, what eles can I do?
Wow, what a spiders nest that is, wish i could help, I can offer you little support.