Many small businesses have relied heavily on help from the Small Business Administration (SBA), especially during the COVID period. Financial assistance, in the form of loans to small businesses, is one of the main types of support that the SBA offers.
During non-emergent times, getting an SBA loan can be difficult. They have stringent requirements for the kinds of businesses they will lend to and demand a lot of paperwork. Some of these limitations have been eased as a result of the COVID-19 pandemic, and the SBA, which manages the Economic Injury Disaster Loans (EIDL) and the Paycheck Protection Program (PPP) loans, The SBA has greatly streamlined the application procedures in response to the need to provide funds to businesses quickly, which has increased the prevalence of SBA loans.
Of course, many small businesses are having difficulties in this period of economic uncertainty caused by COVID. This could result in more business owners having trouble repaying their SBA loans and defaulting on them. We’ll clarify what that means, what effects it might have, and what you can do to address it.
Have I Defaulted On My SBA Loan?
Understanding whether you have “Defaulted” on your SBA loan or are merely “Delinquent” is one of the first things to do. Which of these two states best describes you will determine what you should do next.
For each designation, there are various factors to take into account and actions to take.
Who Decides if I Have Defaulted or if I Am Delinquent on My SBA Loan?
When the SBA lends money to a small business directly, they determine when payments are past due and when you are in default. The majority of the time, however, they do so through affiliated banks and financial institutions, where they typically “guarantee” the loans for lenders to lower their risk.
In those circumstances, the lender—likely your bank—will decide whether you are in default or delinquent.
How Do I Deal with a Delinquent SBA Loan?
Simply put, a delinquent SBA loan is one for which you have fallen behind on payments. You will receive a written notice from your lender or the SBA notifying you that payments are past due and requesting that you make repayments as soon as possible. Although the process will differ depending on the lender, the following is what you can generally anticipate:
In many circumstances, it makes sense for you to get in touch with your lender as soon as you suspect a payment will be missed. Your lender may be more flexible if you seek assistance sooner rather than later.
What Type of Solutions Might I Have for Repaying a Delinquent SBA Loan?
Ultimately, the lender wants you to repay what you owe. Due to this, they might be willing to work with you on a repayment plan. This might include:
Always try to make at least some payment because a lender will typically want to see one within 30 days of contacting you.
What is the Impact of Not Making Repayments Quickly Enough on a Delinquent Loan?
The likelihood of a delinquent loan having an impact will depend on how quickly or whether you make repayments at all.
Your credit score will drop if there are any negative items on your personal or business credit report, which could affect your future ability to obtain financing.
What Happens If I Default On My SBA Loan?
Your loan will become defaulted if you repeatedly fail to make payments and are unable to work out a plan with your bank or the SBA. This will likely result in the following:
What Type of Solutions Might I Have for a Defaulted SBA Loan?
There are still a few choices available if you are in default:
Do You Have Any Advice for Reducing the Possibility of Becoming Delinquent or Defaulting on an SBA Loan?
Yes, here are some starting points:
We recognize that small businesses are currently facing challenges, and we hope that this information will assist you in managing a past-due or defaulted SBA loan.
Can the SBA loan be forgiven?
Borrowers have until the loan’s maturity date to submit a request for forgiveness. PPP loan payments are no longer deferred and borrowers must start making loan payments to their PPP lender if they do not apply for forgiveness within 10 months of the end of the covered period.
What happens if you don’t pay back a SBA loan?
Failure to repay the SBA Loan First, the lender will demand payment from the business for the remaining loan balance. However, the lender will foreclose on the business’s pledged collateral if the borrower is unable to make the full payment. Your business assets may not have much value.
Does SBA loan need to be paid back?
Small businesses can grow their operations with SBA loans for long- or short-term capital, asset purchases, or startup costs. Small businesses are required to repay loans from SBA partner lenders that they receive.
What happens to SBA loan if business fails?
The lender will attempt to recover the entire amount due from the borrower when a government small-business loan is in default, only calling in the SBA’s guarantee if those efforts are unsuccessful. The property that the borrower pledged as collateral for the loan is subject to seizure by the lender.