Can You Ever Qualify For Another SBA Guaranteed Loan If You Default On One?
In a word, NO!
I am frequently asked about this by borrowers in default who are trying to determine the advantages and disadvantages of doing a debt workout, so, here is the answer: The SBA regulations state that unless you pay every penny of an SBA guaranteed loan back to the bank and/or SBA, you will not be allowed to obtain another SBA guaranteed loan again. You are disqualified. The SBA application process includes a question asking if you have ever defaulted on a government-backed loan, such as an SBA guaranty. It further has a computerized checking program which cross-checks its data banks and will come up with a default even if you answer “no” to the question but have, in fact, defaulted.
However, this issue is really a non-issue because if you are in default, what choice do you have other than to do the workout even if you cannot get another loan in the future? Just as surely if you do not do the workout, you won’t be qualified to borrow again anyway as you will be forced into default and the resulting foreclosure. Either way, you will be disqualified and with a workout, at least you have the debt off your back without a bankruptcy.
Do not let this stop you. Do the workout or pay the note in full–these are your only two choices. Since you cannot pay the note with decreasing revenues you must do the workout. Put survival first before future loan availability. The same answer applies to credit scores–a very frequent question for many and a determining factor in deciding for some is the potential damage to one’s credit score from doing a workout, as if this is a relevant issue when confronting default. It isn’t. Survival first, credit scores second. Really, what choice do you have?
