Does the SBA guarantee protect me if my business cannot repay?
Short answer
No. The SBA guaranty protects the lender. If SBA pays the lender, your liability continues, and SBA is not a co-guarantor with you. Source: SBA Form 148, para. 9.B.
No. The SBA guaranty runs to the lender. It covers part of the lender's loss and does nothing to reduce what you owe. SBA Form 148, paragraph 9.B, says a guarantor's liability continues even if SBA pays the lender. It also says SBA is not a co-guarantor, and that a guarantor has no right of contribution from SBA.
How much SBA covers for the lender
On 7(a) loans the maximum guaranty is 85% on loans of $150,000 or less and 75% on larger loans. On SBA Express loans it is 50% (SOP 50 10 8.1, App. 16). Those percentages describe the lender's protection, not a cap on your debt.
What can happen after default
SBA Form 1919 lists actions SBA may take when payments are not made:
- Report the debt to credit bureaus
- Hire a collection agency
- Offset your income tax refund or other federal payments
- Suspend or debar you or your company from federal business
- Refer the debt to the Department of Justice or other attorneys for litigation
- Foreclose on collateral
Future SBA loans
Unless SBA is reimbursed in full for the loss, you will not be eligible for more SBA financial assistance (SBA Form 1919). If SBA suffers a loss, the names of the business and its guarantors will be referred for listing in the Credit Alert Verification Reporting System (CAIVRS) database. That may affect future federal assistance (Sec. A, Ch. 1, Para. E, Prior Loss to the Government).
No claim against the collateral yet
A guarantor has no subrogation rights as to the note or collateralProperty a lender can take and sell if a loan is not repaid. until the note is paid in full (Form 148, para. 9.C).
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