If you cannot afford SBA loans, it is important to understand what will happen if you default. SBA loans are loans provided to small businesses that would not qualify for a loan through ordinary business lenders. The lender’s risk is mitigated by the Small Business Administration’s guarantee, which is why the small business receives the funds. If a debtor’s loan goes into default, the government will cover the losses of the lender up to 90%. Aside from the fact that this may be a great way to create millions of jobs, the structure of these loans are simply riskier and more prone to default.
What happens when you cannot afford SBA loans?
Early Default: What Are Your Options To Remedy This Issue?
If you are finding it to burdensome to make payments on your SBA loan, this could just be the symptom of a much greater problem your business may be facing. Whatever ever the reason for your plight may be, you should first start by making reductions in overhead costs, growing sales and managing your finances better.
How to best prioritize your debts
If the above efforts prove to be futile, you should then explore options with your lender for a SBA loan modification or deferment. The lender has some flexibility in providing your with the time to get back on your feet with your SBA loan payments. You cannot show a substantial cash flow, otherwise you will be told to start paying as agreed. Further, you also cannot show too much stress, otherwise your lender may elect to move you into liquidation.
If your lender refuses any modifications or deferments, then your need to consider a debt workout, restructuring or an exit from the business, preferably one that has you escaping it without losing everything.
What assets may be in trouble if you default?
When you enter default on your SBA loan, your business bank accounts could be in trouble. The lender will have the “right of offset” if you are keeping accounts in the same bank that is holding your loans, this permits them to take funds from your accounts to cover past due payments. You should consider moving these funds to a new bank account. However, you should also note that lenders have other means of getting to your bank accounts, even if they are in a different financial institution.
May bank accounts be garnished in an SBA loan default?
Most business debtors share the same anxieties when it comes to the prospect of being forced out of their homes. There are some SBA loans that require debtors to put up their homes as collateral, while some do not. Unfortunately, if the bank does not have a lien on your home, this does not mean that you are off the hook, they may still go after your home.
What about your retirement accounts?
There is no clear cut answer to this question, because it depends on the laws of your State of residency. Generally most states have laws in place to protect your retirement accounts, but it isn’t the case everywhere.
SBA Debt Relief Options
If you have reached a point where your SBA loan repayments simply cannot afford SBA loans, there are other debt relief strategies available. You may enter into debt settlement or debt negotiation if you prefer to avoid filing bankruptcy. For those business owners that opt to file bankruptcy, a Chapter 11 or a Business Chapter 7 bankruptcy may work.