What happens if I default on a SBA business loan?

[yellville]

What happens if I default on a SBA business loan? I own a business in Texas and I can no longer afford to make the monthly loan payments. The loan was issued by a local bank and its a SBA loan. I am one of four people who is a "guarantor". What does this all mean? Can the bank come after my personal assets? What assets, if any? Who do they go after first? Would it help if I file for personal/business bankruptcy? Please I need some answers and I will of course consult a legal professional, but I wanted the forum community feedback as well. This is a serious matter, so please make sure your answers are serious as well. Thanks in advance for all answers.

[lrprn]

What you are describing is a complicated legal situation that really does need the input of 3-4 experienced bk lawyers in your area of Texas. You really do need to interview at least 3-4 to make certain the bk lawyer you hire is well-experienced with business cases and also understands the newest case law decisions in Texas and your bk district as well that could impact your filing.

We have a few former SBA loan owners that filed who may post their experiences here. Also do a forum search for "SBA" to read about former members' experiences in threads and individual posts filing with an SBA loan.

No matter what happens, please remember we're here to provide emotional support no matter what. Hang in there and good luck to you!

[justasking]

Yep, you need an attorney and your other guarantors need one each as well.

We also have an SBA loan which is currently in default, mostly because the bank took a loan payment and moved to their own LOC loan and I stopped paying them after they did that because they would not return the funds to the proper loan.

That being said, SBA-guaranteed loans will be pursued strongly by your bank because you have a personal mortgage and a personal guarantee in addition to all your business assets securing this loan. That is pretty much standard for SBA loans. So between the business assets and personal assets of all four of you, the bank will probably feel it has a pretty good chance of recovering funds. Depending on the size of your loan, of course.

You do not say if the business is still viable and if you just cannot pay because of current economic situations (our situation). In that case, a Chapter 11 may be a good option, but it may not remove the personal guarantees of all four guarantors. Or the bank may be willing to settle.

You need to talk to your other guarantors and lawyers asap. Find some strong lawyers who are good at negotiating, get a settlement if you can, pay it off or bankrupt it and move on.

HTHs

[dontodrin]

Re:What happens if I default on a SBA business loan?

Each guaranty is personally liable for 100% of the debt. The bank and the SBA will aggressively pursue collection and will sue you and the other guarantors and foreclose. on your personal assets, possibly your home if there is adequate equity available. However you can file an offer in compromise and have reduced your obligation to what you can afford to pay. You can also file for bankruptcy however this has broader implications and will also affect your property.

[MarkM]

The local bank is free to sue each of the guarantors for the full amount of the debt. The only good news I can see is that you are in Texas -- and therefore it is likely that your home / homestead is protected provided you have only been in Texas for the past couple of years.

Get to an attorney ASAP -- for both you (personally) and the business (assuming you are the one running the business).

[JackBondLove]

What happens if I default on a SBA business loan?

I defaulted (and had discharged) on a SBA disaster personal loan.

I own a business in Texas and I can no longer afford to make the monthly loan payments. The loan was issued by a local bank and its a SBA loan. I am one of four people who is a "guarantor". What does this all mean? Can the bank come after my personal assets? What assets, if any?

At the very least, your personal assets can be garnished, just as if you had defaulted on unsecured debt.

Who do they go after first?

They go after everyone who is on that personal guarantee (which it sounds like you are.) I would suspect that if the total debt is greater than the recoverable assets of all the guarantors, you will all be forced to pay everything, with nothing left over. If together you four have more assets, then I am not sure as to how the exact garnishing would take place.

Would it help if I file for personal/business bankruptcy?

That all depends on exactly how much you all owe. If the amount is not high, then you would need to make a determination of how much debt you could erase vs. your ability to pay back the debt. I have calculated that if the debt to be wiped out plus the amount of property to be lost (or alternatively, the amount the debtor would need to fork over, post discharge, to keep the assets) were greater than $20K, then Chapter 7 would unambiguously be the proper choice.

With that said, it seems that when there is more than a single individual involved, the only way to get out from the total debt is to just declare Chapter 7 and be done with it. Joint debts cannot be allocated - i.e., they would need to be paid off in full (or to some negotiated amount.) It seems to me that when debt partners are involved and the investment goes south, it's like a ship sinking - "every man for himself!"

Please I need some answers and I will of course consult a legal professional, but I wanted the forum community feedback as well. This is a serious matter, so please make sure your answers are serious as well. Thanks in advance for all answers.

[AbbeyA]

My dh had 2 business loans, one was an SBA loan, the other was through a local bank - not as SBA loan. Both loans were personally guaranteed by dh and our house was pledged as collateral for both loans - the SBA loan was taken out after the first loan with the local bank. We filed ch 7 after the business failed and the business assets did not come close to covering the debt ... we didn't hear a peep out of the SBA or the bank that offered the SBA loan. The SBA loan outstanding balance was for 1.8 million dollars. The other bank was a major problem to us in our bk - their outstanding debt was around 500k .

Ultimately it was all discharged, our house is in foreclosure by our primary mortgage company. Get a lawyer with lots of experience in dealing with business loan defaults/bankruptcies - not your standard run of the mill bk lawyer. Good luck!