Facing SBA Loan Default? This Is What You Should Do
Author: Kevin Muir
If you are like many small businesses, you eventually hit a financial roadblock. It may be because of the economy or because your customer’s needs have changed. But while you are struggling to survive, you are not only dealing with cash flow problems but also facing SBA loan default.
If this is your case, you are not alone. Hundreds of thousands of small businesses all over the country apply for and get new SBA financing every year. And the majority of these will go out of business during their first five years. Facing SBA loan default is common.
So what should you do about it? Should you just default and not pay back your loan? After all, the SBA or Small Business Administration financially backs up all SBA loans through the bank. The bank stands to lose nothing, so why should they pursue you?
SBA Loan Default And Personal Guarantees
Unfortunately your situation is not so simple. Even though the SBA does back all of these loans, this is never enough of an insurance policy for the bank. Usually they require every business owner to put up additional collateral to secure the loan.
Try to recall what happened during your SBA loan application process. Likely before you were approved, the bank forced you to give a personal guarantee for the principal amount. This meant that you, the small business owner, had to put up your house, retirement fund or other personal asset to secure the SBA financing.
When facing SBA loan default, the bank has every right to, and will, call in your personal guarantee. You will lose your house and your personal assets to pay back the bank. Once the personal guarantee is paid, and if you still owe money, only then does the SBA backing kick in. That’s it. End of story. The bank still gets all its money and you lose if you default on the loan.
So what do you do when your business is financially strapped? The most important point here is to prevent SBA loan default to begin with. If your business is struggling, it’s time to turn it around. A business turnaround can get your company back on track financially. If you create and follow through on a business turnaround plan, you can make your business profitable again.
Once you are profitable pay off any SBA loans based on personal guarantees. This way you will never find yourself facing SBA loan default again.
Article Source: http://www.articlesbase.com/finance-articles/facing-sba-loan-default-this-is-what-you-should-do-105974.html
About the Author
Our site SbaLoanDefault.com helps small business owners and managers on the topic of SBA Loan Defaults. For more information click SBA Loan Default.
If you default on student loans, is it legal for the government to immediately add on 43% collection costs?
I borrowed $55K (colege & grad school), ending in 1994. I couldn’t get a job, got sick, and was homeless. The bank declared my loans in default, even tho they did not meet all the criteria for default. I finally got a full-time permanent job in 1996, but then lost it in 1997, was a temp for 2 years, and have been paying almost $1,000/mo. since 1999. But somehow, the government says that I owe more than $198,000 (yes! one hundred ninety-eigh thousand!) and in fact, the interest is more than my payments so the balance is actualy growing. All lawyers tell me that unless you are disabled or mentally ill, you cannot discharge student loans in bankruptcy as long as you can pay SOMETHING–it makes no difference under the law that you will never be able to pay off the loan before you die, or that it is an extreme hardship to have this hanging over your head for the rest of your life. Lawyers tell me that it must be an “undue hardship” which is impossible to meet unless it makes you homeless.
Can I file for bankruptcy with defaulted student loans?
I have defaulted on my student loans and now it is due on default. My loans are for 30K, I barely make 29K and I have other debt. Can I file for bankruptcy now that my student loans have defaulted?
Will filing bankruptcy prevent my tax refund from being taken because of a default student loan?
i know a student loan is rarely discharged in bankruptcy, unless it would cause an undo hardship to repay or if the student loan went into default 7 years prior to filing bankruptcy. Both of these situations apply to me.
We have open Ch 13 Bankruptcy and defaulted student loans. We DID get tax refund. Will we get rebate as well?
I realize the IRS will typically garnish your refund if you have student loans in default. However, they will not garnish the refund IF your Ch. 13 is still open which mine is. I called the IRS and asked if we would receive a rebate. The person I spoke to did not know, but she said if we received our refund (which we did) then she thinks we will also receive the rebate.
If I file bankruptcy and have defaulted student loans on my credit, will the defaulted loan stay on there?
I know defaulted loans can hurt your credit for a longer time than bankruptcy. If I can’t get my loans discharged in a bankruptcy will the default still show up on my credit or can i consolidate them or something? I don’t want to have a bankruptcy and defaulted loans plastered all over my credit for the next 15 years.
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I do not think so but the new bankruptcy laws make you pay some back
if you got a tax refund then most likly you will get the rebate check if you qualify for it . also you can call 18003043107 too see if you have a debt . if you do then your rebate check will be applied to it.
student loans can NOT be dc thru bankruptcy.. If u are permanently disabled they will be written off. Even if u are mentally ill and can work, they can’t be written off ..must be a permanent disability where u can’t work. Undue hardship can be anything..illness, death in family that keeps u working. Temporary economic hardship..u really need to contact them and see if u might qualify for any sort of deferment or any payment methods that u can qualify for.. Most of them will work with you but as this point, u are probably screwed. but I would talk to them.. don’t be surprised if they tell u “u should have applied for deferment when u were not working or sick”.. GL
No. Student loans are exempt from bankrupcy laws. They may be discharged if/when it becomes apparent the borrower is unable to repay. BUT…the discharged amount is credited as earned income, and you become responsible for paying tax on it.
My husband’s student loan has been sucking up our tax refund the past 4 years. Since MY income is the only income in the home during that time, I filed an “injured spouse” form with my returns and I was able to get the refund in full. BUT…you have to live in a state where that will apply. The only way to keep the gov’t from having their hand in your pocket, is to keep the $$ from going to them in the first place. Increase your deductibles so you don’t have as much taken out of your check.