There’s no need to feel bad about defaulting on an SBA guaranteed loan, you’re covered!
Encountering numerous amounts of small business owners who have entered SBA guaranteed loans has led me to often stumble upon burrowers who suffer from a condition most commonly known as “borrower’s remorse.” These individuals feel as though they have failed to fulfill their obligations by not satisfying their commitment and defaulting on the loan, thereby breaking their promise to pay. I for one, greatly respect the belief that we should all full fill our commitments and honor our word.
However, at times unforeseen circumstances beyond ones control, can force the dreams of small business owners to come crumbling down. A perfect example of such a circumstance is a plummeting economy. It is under no individual’s control, and unfortunately we must deal with the consequences it brings.
Many times, you find that small business owners will invest every penny they have, borrow boundlessly, work without compensation, and put in extremely long hours. They will stop at nothing to succeed. Their main priority is to pay off their obligations, but sometimes they simply don’t have enough.
Banks are prevented from making any truly meaningful modifications because the SBA does not allow adjustment to the terms. Therefore, if you were to request assistance, none would be given. There would be no deal. In order to satisfy the note, the SBA requires the bank to exhaust their legal remedies with the intention of collecting and liquidating the collateral. If the bank fails to perform effectively, then they may lose their SBA guaranty. Consequently, if you were to experience such an issue, you may find yourself buried in a deep hole without an opportunity to safely resolve the problem at hand.
Unfortunately, no real help is ever provided. Possibly, the most they will do is 3-6 months of “interest only payments.” The problem is that your issues are not that simple. In addition, in order to satisfy their legal requirements, they will proceed in liquidating your homes and everything you own.
It is not a matter of ‘fairness,’ it IS however what you agreed to when signing up. Nonetheless, there is one factor that the borrower is seldom reminded and it is something I consider as an equalizer.
When signing for the SBA guaranty, you paid a significant sum and this is the factor that many may not recall. By paying for this fee, you were purchasing insurance. This insurance is so that in the case that you are forced to default, the bank will receive the guaranty in order to cover its losses.
So why commiserate for being unable to pay? If you have already purchased insurance to protect you from such losses, then why destroy yourself and your family’s financial future so as to honor your word? These issues are rarely brought upon negligence and personal failure. They are simply caused by uncontrollable events. We are all aware that business failure is occurring vastly.
This is why you are required to purchase protection for the bank.
Sadly, despite this insurance, the bank is still obliged to liquidate your business and personal assets as best as they can in order to claim the insurance payoff.
The bank will reach out to the SBA for the guaranty (which you have paid for) even after they have hung you out dry.
Not enough small business owners are informed on how to navigate through this mine field and manage to emerge safely. This is the true issue and banks will not make you aware of it nor will they assist you.
If you need help, give us a call at 413-584-2581. Norm will arrange a no obligation conference so that we can discuss your options and a path to survival.
There is a way.
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?
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?
The style of writing is quite familiar . Have you written guest posts for other blogs?
FANTASTIC!
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?
I have an Sba loan with an SBA collateral loan on my home. Any way to get that lien removed from my home?
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?
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. > >
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?
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?
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.
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
You certainly deserve a round of applause for your post and more specifically, your blog in general. Very high quality material.
Donald,
Nice blog. My partner and I have had a business for over 15 years in California. We went on a hiatus shut down In March of 2010 it is now Sept of 2010.
This is actually a very complex situation but I will try to boil it down. We have our assets and personal guarantees in first position with another lender for business related operating debt
that we are currently working down. That lender basically “owns us” and wants us to try and continue the business on a smaller scale. They also want us to move from our location to a smaller space as we cannot service the debt. They want us to go smaller and walk away from our commercial property if needed to try and keep the company alive.
Our commercial property is held by two banks and the SBA holds the second. Both have personal guarantees on us but are behind the other lender. We have not made payments since April of 2010 and the building officially forecloses in mid-Novemeber and sale to happen in mid -December.
The value of the real estate is enough that the bank in first position should get their full payout and force a sale if needed. We have had the building for sale and or lease for over a year and have been communicating with local SBA and other lenders frequently. So those relationships are as good as to be expected in this type of a situation. However, we are almost out of money as we have burned through cash trying to find investment over the last 6 months so our options are limited.
My first question is as follows. Since our primary investor has a first on us personally and can force their hand at any time on our personal guarantees and what we do have left is protected mostly by California BK exemption laws, would the SBA still force us into a BK by trying to attach future wages and earnings if we told them we would just go BK they took that approach? Or just say, it’s not worth it and move on?
Question two. We have a possibly buyer interested in the building but we are not sure
if we can make it work due to some various challenges. However if it did come together we would still need to hand the SBA a loss of about 800k via a short sale. Can this number be worked out below lets say 50k in a work out scenario with payments?
In all of our years in business we have never missed a payment and have excellent credit. We communicated all of our banks ahead of time that we were going to stop payments a month before it happen. We hate that we cannot full fill our obligations however if we are to have a future with what little we have left of our company, we need walk away from these debts with as little carnage as possible as we are close to broke. We are trying to avoid going BK as we still need to raise some basic working capitol but there may not be anyway around it.
Any thoughts you have are appreciated.
Thanks
Todd
I had a wonderful franchise, a cold stone creamery. I had an SBA loan in the amount of $310,000. Needless to say after 3 unsuccessful years the store is now closed with a balance of about $285,000. I paid for a guaranty in the amount of about $5000 if I recall. Hence now CIT rejected my offer in compromise as I have no cash left. They received $6000 for equipment and I can only pay a couple thousand out of my pocket as all my savings were depleted. They required NO collateral for my SBA loan because of my credit aside from a life insurance policy that listed them as an assignment. Do I have any hope or is my only lifeline filing bankruptcy?
Thanks
Jerry
Todd,
I have an SBA loan and I have had many catastrophic situations.
I moved several times because I had a stalker and was not able to settle in one place.
The guy that helped me get the loan owes me over 5k. I had a business and then him and I were going to do some other business venture, but he had some issues. Then had to care for my for my mom and son.
I paid over 23% of the loan. They are wanting to garnish my wages. The Bank was closed down several months ago.
I have requested to deal directly with Innovative oppose to the collection agency. Do you have any suggestions?
In 2006 my husband along with a partner purchased a franchise hotel in Arkansas. They have a bank loan for $2.4 million and a SBA loan for $2 million. Now the hotel sales have drastically decreased due to franchise change. They have putting money into it to keep it going but now they are coming to an end. They may be foreclosing on the hotel which means the loans will go in to default. What will happen with the SBA, they are personal guarantors on the loan. I am not a part of this business at all, living in California do you think I am going to be liable for his debts. I have my own business, do you think the bank will come after my assets also?
Raji,
Yes you are exposed as is all your assets and other businesses you may own. Give us a call, we know how to navigate this minefield successfully.
Wow, what a spiders nest that is, wish i could help, I can offer you little support.
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.
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.
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.