Can an SBA Express loan default if I make every payment?
Short answer
Yes, with conditions. SOP 50 10 8.1, Sec. B, Ch. 2, Para. B.4 allows non-financial default provisions. They must be substantive, agreed in writing at closing and consistent with the lender's similar loans.
Yes. An SBA Express loan can include non-financial default provisions. SOP 50 10 8.1, Sec. B, Ch. 2, Para. B.4 defines them as loan conditions that, if violated, put the loan in default even if you made all payments as agreed.
The conditions SBA sets
- The provisions must be substantive.
- You must agree to them in writing at loan closing.
- They must be consistent with those the lender uses on similarly sized non-SBA loans.
- The note must still set a maturity date. A line could be payable on demand under certain conditions, but no later than a certain date.
A limit on the lender
The lender may not ask SBA to purchase its guaranty based solely on a violation of a non-financial default provision (Para. B.4; 13 CFR 120.520).
Default interest
SBA Express also allows a default interest rate, which is an increase in the rate when a default event occurs. It is allowed, if commercially reasonable and consistent with the lender's similar non-SBA loans (Appendix 18, Para. B.3). On a 7(a) Small loan, default interest rates are not permitted (Appendix 18, Para. B.2).
What to do before closing
Read the note and loan agreement for covenants, cross-defaults and demand language. Ask the lender what triggers default and whether a cure period applies.
Ask lending partners about your loan
Tell us the amount you need and what it is for. We refer you to lenders that may fund businesses like yours, and it costs you nothing.
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