Life after an SBA loan closes: questions and answers

All 18 answers on life after an SBA loan closes

Each entry gives the short answer. Open it for the full explanation and its sources.

Who services an SBA 7(a) loan after it closes?

Your lender does. 13 CFR 120.535 requires lenders to service 7(a) loans as diligently as their other loans. The lender stays responsible until SBA honors its guarantee in full. SBA can take over servicing at its discretion.

What do you have to keep doing after an SBA loan closes?

You must keep books, furnish financial statements when asked, pay taxes when due and post SBA Form 722. You also promised not to change ownership or sell assets outside the ordinary course without consent. Source: SOP 50 10 8.1, Sec. B, Ch. 6, Para. D.8.

Can your lender sell your SBA loan?

Yes. A lender can sell the guaranteed portion of a fully disbursed 7(a) loan on SBA's secondary market. It must keep servicing the loan. Sources: 13 CFR 120.601, 120.613 and 120.520(c); SOP 50 10 8.1, Sec. B, Ch. 6, Para. D.1.

What happens if you miss a payment on an SBA loan?

A lender may charge up to 5% of the regular payment when more than 10 days late. After more than 29 days unpaid, the loan is not current under SBA rules. Sources: 13 CFR 120.221(d); SOP 50 10 8.1, Sec. A, Ch. 1, Para. E.

What happens if you default on an SBA loan?

The lender can collect against collateral and guarantors and ask SBA to buy its guaranteed share. You and your guarantors still owe what remains, and SBA can pursue it through collection, offset and litigation. Sources: 13 CFR 120.520 and 120.545; SBA Form 1919.

What does it mean when SBA buys the guaranty on your loan?

It means SBA paid its guaranteed share to the lender or investor after a default. Your debt continues. A lender may request purchase once an installment is over 60 calendar days in default and business personal property has been liquidated. Source: 13 CFR 120.520.

Can a lender take your personal assets after an SBA default?

Yes, if you signed a personal guarantee. SBA Form 148 lets the lender demand full payment from you without first pursuing the business, other guarantors or collateral. Property you pledged can also be sold. Sources: SBA Form 148, para. 1; 13 CFR 120.545.

Can an SBA loan be settled for less than you owe?

Sometimes. SBA's lender page describes an offer in compromise, typically after collateral is liquidated. A lender generally needs SBA's prior written consent. A compromise counts as a loss under the Prior Loss rule. Sources: 13 CFR 120.536; SOP 50 10 8.1, Sec. A, Ch. 1, Para. E.

Can you defer payments on an SBA loan?

Possibly. 13 CFR 120.530 lets SBA agree to defer payments on any business loan program, including 504, for a stated period. Ask your lender first. SOP 50 57 sets the approval route, and lenders cannot charge a fee for resetting the payment afterward.

Can a buyer assume your SBA loan when you sell?

Yes, with consent. A 504 loan may be assumed only with SBA's prior written approval (13 CFR 120.937). SOP 50 10 8.1 recognizes 7(a) assumptions and sends lenders to SOP 50 57 for the procedure. SBA does not require a new guaranty fee on a 7(a) assumption.

How much can a lender charge to assume an SBA loan?

No more than 1 percent of the principal balance at the time of assumption on a 7(a) loan. The fee must be reasonable and consistent with the lender's non-SBA loans. Either party may pay it. Source: SOP 50 10 8.1, Sec. A, Ch. 4, Para. C.2.e.

Can you sell a business that still has an SBA loan?

Yes, but you need the lender involved. You certified that you would not change ownership or sell assets outside the ordinary course without its written consent. The loan can be paid off at closing or assumed. Source: SOP 50 10 8.1, Sec. B, Ch. 6, Para. D.8.b.

Does your SBA personal guarantee end when you sell the business?

Not automatically. SBA Form 148 says the guarantee remains in effect until the note is paid in full. A payoff at closing ends it. If the loan stays in place, you need a written release from the lender. Source: SBA Form 148, paras. 1, 4 and 9.H.

Can you add or remove an owner after an SBA loan closes?

Only with the lender's prior written consent. A 504 Certified Development Company (CDC) cannot approve a change on its own for 12 months after final disbursement. New owners must meet SBA's citizenship rules. Sources: SOP 50 10 8.1, Sec. B, Ch. 6, Para. D.8.b; Sec. C, Ch. 2, Para. C.7.

Can you sell or replace equipment pledged on an SBA loan?

Not without the lender's prior written consent, unless the sale is in the ordinary course of business. Lenders may not charge a fee for releasing or exchanging collateral, apart from out-of-pocket costs. Sources: SOP 50 10 8.1, Sec. B, Ch. 6, Para. D.8.b; Sec. A, Ch. 4, Para. C.2.b.

Who services an SBA 504 loan after it closes?

The CDC handles routine servicing, including annual financial reviews, insurance, taxes and lien renewals. Payments run through the Central Servicing Agent. If a loan is more than three months past due, the CDC must generally ask SBA to buy the debenture. Source: 13 CFR 120.970.

What happens to an SBA loan if your business goes bankrupt?

The lender must mark the loan In Liquidation and may seek SBA's guarantee once 60 days pass since the last full payment. Guarantors waive the defense that the borrower avoided liability. A discharged amount can count as a federal loss. Sources: 13 CFR 120.520; SBA Form 148.

Can an SBA loan be increased after it is approved?

Yes, within program maximums and with SBA's approval. On term loans, an increase over 20% of the original amount or more than 18 months after approval needs added analysis. Fees use the rates from the original approval. Source: SOP 50 10 8.1, Sec. B, Ch. 6, Para. B.