SBA loans typically come with low-interest rates and less stringent terms than traditional business loans, making them especially attractive to small or struggling businesses.
However, there are still times when you may find yourself in default of the loan and unable to pay, in which case, it is important to understand the lender’s process of recovering the funds so that you know what to do next.
What Happens if You Default on an SBA Loan?
The Lender Will Inform You of the Default
Once you become behind on your loan, the lender will first contact you via letter, informing you of the delinquency, and then demand that you make a payment right away.
In the meantime, the lender will also assess a late fee for the payment not being made on time.
Work With You to Make Your Payments
After the lender has informed you of your loan default, you can contact them to explain your reason for the late payments and see if they will work with you to make your payments on time in the future.
However, time is of the essence at this point because the farther you are behind on your payments, the harder it will be for the lender to find solutions.
Initate the Collections Process
If you still fail to make your payments even after the lender has provided you with a new solution, they will then take steps to begin collecting the money you owe.
This includes even selling the inventory, equipment, or other assets you used as collateral for the loan.
They may also put your property in foreclosure or shut down your business.
Submit a Claim to the SBA
Once the lender has exhausted all options for recovering the money you owe, they will next submit a claim to the SBA for the amount they guaranteed as part of your loan.
The SBA would then hold you responsible for repaying the funds they recompensed to the lender, after which time you can pay the balance in full, or they may accept a settlement based on your finances, also known as an offer in compromise.
Send Your Account to the Treasury Department
If the SBA has declined all your offers of compromise, and you are unable to pay the balance in full, the administration will then send your account to the Treasury Department for repayment.
The Treasury Department will then take more drastic steps to collect the money owed, including garnishing your wages or taking your tax return. However, they ma first work with you to accept a settlement.
Ultimately, if you find yourself in default of an SBA loan or at your wit’s end about how to pay off SBA loan, it is important to contact the lender immediately to avoid more drastic collection actions that can cost you your business.
In the meantime, if your company has been struggling due to COVID 19, then according to the experts at Lantern by SoFi, “the Economic Disaster Loan program is a great option for businesses…And if you qualified for and received…the Advance, so much better,” because you don’t have to pay it back for greater peace of mind.
Also Read: Know-How Individual Tax Return Works?