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SBA Default Poses Major New Threat To Your Personal Credit

Article | March 11, 2019

With no formal announcement, the SBA has taken a threatening new stance that could affect anyone with an SBA loan.

SBA loans sign

Warning Bulletin: PRIORITY ALERT

Issued 03.20.2018

In the last 30 days, we have identified a dangerous policy shift confronting guarantors in SBA default. With no formal announcement, the SBA has taken a threatening new stance that could affect anyone with an SBA loan.

We can now confirm that the SBA has begun reporting “charged off” SBA debt to the major credit reporting agencies as a default on a personal loan. The impact on your personal credit and the aggressive nature of this shift cannot be underestimated.

The Stakes Have Risen

There is now tremendous personal risk involved with SBA default, as it will be nearly impossible to finance any transaction with hundreds of thousands or even millions of dollars in business debt reported on your personal credit report.

At Second Wind Consultants, we are vigilant about keeping all aspects of commercial debt on our radar at all times–including any amendments in policies or procedures regarding the inner workings of federally-backed loans. This current change, unreported anywhere else, represents a titanic shift, unlike anything we’ve seen in the 64-year history of SBA.

Is This Legal?

You may be wondering if it’s even legal to convert a business debt into a personal credit issue.  To us, this seems to be a very grey area and illustrates why we detected this shift under the radar, rather than getting our information through a formal announcement. In fact, we can’t determine what specific policy has changed, or even which agency decided to change it. Such a development occurring in the shadows seems to be a reflection of how ominous it is. If this policy sets a new precedent, it will redefine the entire landscape of the borrower/guarantor relationship.

Now What?

The risk of an SBA loan “charge off” being reported to credit agencies by a commercial lender has always existed. However, the SBA has not historically done this itself. In the past, when the servicing bank submitted a defaulted loan back to the SBA, the SBA would make attempts to collect and ultimately push any uncollected debt to the Treasury Offset Program. The Treasury would then make its own efforts to collect, and if these failed, the default would most certainly destroy your business credit. Your personal credit, however, would remain unaffected.

As of now, that has all changed. Now, when your loan is “charged off” and the transfer to Treasury begins, the default is reported, and your personal credit is ruined.

If this should happen to you, the best response is to file a dispute with each credit bureau. If that fails, submit the dispute again and again, essentially spamming the record off of your credit report. If you’d like someone to do the work for you, consider hiring a credit repair agency.

A Better Way

Ideally, you would get ahead of the problem and dispose of your SBA obligation favorably before it ever gets reported. Working with a reputable debt elimination firm like Second Wind Consultants is the best way to ensure a positive outcome. Second Wind designed the nation’s first defaulted SBA loan resolution program 35 years ago and has been successfully eliminating defaulted SBA loan obligations ever since. This solution frees both the business and the owner to succeed once again while reducing the owner’s personal guarantees to affordable losses. Not only that, the discharged debt stops there and doesn’t get passed to the Treasury.

So before an SBA default ruins your personal credit, a debt resolution strategy may be your most potent option. In the face of increasingly aggressive SBA and Treasury policy, Second Wind can show you a better way out of your tough situation. Find out more and set up your free consultation today.

 

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