SBA 7(a) Loan Default Stories Wanted!
June 17, 2024
by an investor from Columbia University - Columbia Business School in Hanover, NH, USA
In looking at the data on SBA loans, I am wondering the "reality" of the personal guarantee they require. The data show that the SBA is writing off most of their defaults. Very little revenue from foreclosed property.
I'm wondering if anybody has had their assets from a PG actually taken for a SBA backed loan. Or is it just threatened, but the reality is most people walk away without the personal assets really being taken?
My source is this:
https://www.sba.gov/sites/default/files/###-###-#### /2022_SBA-AFR_R02-508.pdf
It looks like they are only carrying on the books foreclosed property of 57 loans if I am reading this right.
In another section they cite $6B in claim payments for the guarantee, and then have a direct writeoff of $5.4B. Foreclosed property offsets being only $6M….
So basically a zero risk option on the taxpayers dime. Unless you are one of the 57 unlucky bas****….
Who has true and real stories to tell about the PG being exercised?
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
1) After you default on an SBA 7A loan the Bank takes legal action and sues the company and any guarantors personally for default.
2) The Bank works to secure and liquidate the collateral on the loan. This is where you can cooperate in good faith. You have the option to do what is referred to as an "Offer & Compromise" where you make an offer to the Bank and SBA to settle the debt. In essence you can say you will work to sell the company or assets and make a payment to the Bank from some cash to be released from your personal guarantee. Both the SBA and Bank have to approve the plan. There is no guarantee they will do so, but if you can make them whole or close to whole on the deal, it is possible. Please keep in mind if your house is pledged as additional collateral they will liquidate the house as well during this stage unless you do some sort of settlement to get the house released.
3) Once the assets are liquidated if the loan is satisfied you are good. If there is a shortfall and there is still a loan balance the Bank must deal with that balance.. Most Banks will then go to the SBA and file to collect on the SBA guarantee. If a Bank believes you have assets, they could still pursue your personal guarantee and look to recover some of their exposure from you personally. Keep in mind that only 75% of the loan balance is guaranteed by the SBA. Some Banks try to limit the loss they take on their 25% of the transaction. Every dollar collected from liquidation of the collateral or from the guarantor personally gets split with 75% going to the SBA and 25% going to the Bank's. portion of the debt, so the more money the Bank gets in liquidation the less of a write-off they take on their 25% portion of the loan (this assumes the guarantee split is 75% / 25% like the majority of SBA loans).
4) Once the SBA pays the Bank on its guarantee the Bank is done pursuing you. However, the SBA still technically has the right to come after you on your personal guarantee to be made whole. They could do that any time. So that exposure sits out there until the statute of limitations runs out for them to come after you. If the SBA has experienced a loss related to you, you are barred from borrowing from the government again unless you cure that loss. You can go back later and payoff the loss the SBA had so you can borrow again.
I have seen a variety of SBA loans go bad over the years for a number of different reasons. However, I have seen way more success stories. Often if a deal goes bad and a guarantor really ends up with a large balance they end up filing personal bankruptcy to get out from under it. If you have additional questions I would be more than happy to answer them at any time at redacted
from Miami University of Ohio in Chicago, IL, USA
As for 7A, typically there as well the borrower has exhausted all avenues and has been able to move or hide assets off the books, and again nothing is available to go after on the guarantor. In all cases, they review to ensure there is nothing of value held by the guarantor and as long as they document, it is written off by the SBA and they move on. If for some reason you had equity in your house which you pledged, then they would try to recover. I always recommended before ever getting an SBA loan you need to obtain a HELOC so the SBA cant take that equity.