What happens if you default on an SBA loan?
Short answer
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.
The lender can collect against collateralProperty a lender can take and sell if a loan is not repaid. and guarantors, and can ask SBA to honor its guarantee. Any remaining balance is still owed.
What the lender can do
Your note defines what counts as a default. Once there is one, the lender can:
- Liquidate collateral if the loan is in default or has no reasonable prospect of repayment (13 CFR 120.545(a)).
- Mark the loan In Liquidation on its reports to SBA when it accelerates the note (sba.gov/sba-lenders, read November 8, 2026).
What SBA can do
SBA Form 1919 (02/2025) lists steps if 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 from doing business with the federal government.
- Refer the debt to the Department of Justice or other attorneys.
- Foreclose on collateral.
What you still owe
SBA's guaranty protects the lender, not you. If SBA pays, a guarantor's liability continues, and SBA is not a co-guarantor (SBA Form 148, para. 9.B). SBA and the lender share recoveries pro rata (13 CFR 120.545(d)).
Longer-term effects
Unless SBA is reimbursed in full for a loss, you will not be eligible for more SBA financial assistance (SBA Form 1919). Lenders must warn that names can be referred for Credit Alert Verification Reporting System (CAIVRS) listing (SOP 50 10 8.1, Sec. A, Ch. 1, Para. E).
What is not covered here
SOP 50 57 governs workouts and liquidation steps. It is not among the sources behind this page.
Sources
- 13 CFR § 120.520
- 13 CFR § 120.545
- SBA Form 1919 (02/2025), Borrower Information Form
- SBA Form 148, Unconditional Guarantee
- SOP 50 10 8.1, Sec. A, Ch. 1, Para. E, Prior Loss to the Government (about pp. 24-25)
- SBA, Terms, conditions and eligibility for 7(a) lenders, sba.gov/sba-lenders (read November 8, 2026)
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