Did you miss your SBA loan payment? Know the consequences!
SBA loans are a popular choice for small business owners who need funding to start or grow their business. As a small business owner, you may have taken out a loan from the U.S. Small Business Administration (SBA) to finance your business.
The dynamic nature of the economy can create challenges for business owners to meet their SBA loan payment obligations, making it hard for some to stay current on their payments. Regardless of the reason, missing an SBA loan payment can have serious consequences.
It’s important to note that these consequences can vary depending on your specific loan agreement and the policies of your lender. If you are having trouble making your SBA loan payments, it’s important to reach out to your lender as soon as possible to discuss your options and avoid default.
Here are some of the consequences you may face if you miss SBA loan payments.
Delinquency
Most lenders will classify an SBA loan as delinquent once the borrower starts to miss SBA loan payment. Delinquency can lead to additional fees, penalties, and interest charges. At this point, your SBA lender will likely reach out to you to remind you of your delinquency and insist that you repay your debt.
Default
Default occurs when a borrower repeatedly misses SBA loan payment and has not come to a resolution with their lender. Once a borrower has defaulted on their SBA loan, the lender may demand immediate repayment of the full amount of the loan, including any interest and penalties. If the borrower is unable to repay the loan in full, the lender may initiate legal proceedings to recover the money owed. Defaulting on an SBA loan can have serious consequences for the borrower’s credit score and financial stability, and may make it difficult for them to obtain credit in the future.
Legal action
If the borrower defaults on their loan or repeatedly fails to make SBA loan payment as required under the loan agreement. The specific legal actions that a lender may take will depend on the terms of the loan agreement and applicable laws. Common legal actions that may be taken by lenders in cases of loan default include filing a lawsuit against the borrower to recover the outstanding debt, seeking a court order to garnish the borrower’s wages or bank accounts, asset seizure and foreclosing on any collateral that was pledged as security for the loan.
Lender recovers from SBA guarantee
If you borrowed an SBA loan but cannot repay it, your lender may ask the U.S. Small Business Administration (SBA) to repay them for the portion of your loan that was guaranteed by the government. This happens when the value of your business and personal assets is not enough to cover the loan amount you owe. The lender will file a request with the SBA to receive this repayment, so they can recover their losses from your defaulted loan.
SBA will make effort to collect SBA loan from you
When you cannot repay your SBA loan and your lender asks the SBA to repay them, you still owe the SBA the money you borrowed. The SBA will send you a letter giving you 60 days to respond and pay back the loan. If you do not respond, the SBA will transfer your account to the U.S. Treasury Department. You can either pay back the loan or negotiate a settlement with the SBA during this time.
The US Treasury Department will take action to collect the debt
If you don’t respond to the 60-day demand letter or can’t reach a compromise with the SBA, your loan account will be transferred to the Treasury Department. They may withhold your wages, tax refunds, or other government benefits to recover the debt, and could even file a lawsuit against you.
Difficulty Obtaining Future Financing
When you default on an SBA loan, it can become difficult to obtain future financing. This is because defaulting on a loan negatively impacts your credit score and your credit history. As a result, other lenders may view you as a risky borrower and may be hesitant to lend you money in the future.
In addition to this, your name may be added to a list of individuals or businesses that have defaulted on SBA loans, which can make it harder for you to get financing from other government agencies or lenders that work with the SBA.
In conclusion, missing payments or defaulting on an SBA loan can have severe consequences for your business and personal finances. It is essential to make every effort to keep up with loan payments and work with your lender if you are experiencing financial difficulties. If you are unable to make payments, consider seeking assistance from a financial advisor or credit counselor to help you develop a plan to manage your debt and improve your financial situation.
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