What happens to an SBA loan if your business goes bankrupt?
Short answer
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.
The lender moves the loan into liquidation status. SBA's lender page says lenders must classify a loan as In Liquidation on their monthly SBA Form 1502 report. That applies when they receive notice of a bankruptcy filing (read November 8, 2026).
The guaranty
A lender may request purchase of a defaulted 7(a) loan when a borrower files for federal bankruptcy. At least 60 days must have passed since the last full installment payment (13 CFR 120.520(a)(1)). On a 504 loan, SBA's lender page tells Certified Development Companies (CDCs) to seek purchase of the debenture when a bankruptcy that hurts repayment begins.
Guarantors
SBA Form 148 says a guarantor waives the defense that the borrower has avoided liability on the note (para. 6.C.15). By the form's terms, a business bankruptcy does not end a personal guaranteeYour promise to repay the loan yourself if the business cannot. . How a case affects you personally depends on bankruptcy law.
Future federal loans
- Amounts discharged in bankruptcy count as a loss under the Prior Loss rule (SOP 50 10 8.1, Sec. A, Ch. 1, Para. E).
- A debt in bankruptcy may not count as delinquent if you are current on any court plan. Any loss still applies under the Prior Loss rule (Para. E).
Applying again
SBA Form 1919, question 1, asks about any present bankruptcy. On a Standard 7(a) loan, the lender must discuss bankruptcy filings in its credit memo (Sec. B, Ch. 1, Para. C.2.a). On SBA Express, how much to weigh a past bankruptcy is left to the lender (Sec. B, Ch. 2, Para. C.2.b).
Get counsel
Talk to a bankruptcy attorney. The sources here do not address outcomes by chapter.
Sources
- 13 CFR ยง 120.520
- SBA, Terms, conditions and eligibility for 7(a) lenders, sba.gov/sba-lenders (read November 8, 2026)
- SBA Form 148, Unconditional Guarantee
- SBA Form 1919 (02/2025), Borrower Information Form
- SOP 50 10 8.1, Sec. A, Ch. 1, Para. E, Prior Loss and Delinquent Federal Debt (about pp. 24-26)
- SOP 50 10 8.1, Sec. B, Ch. 1, Para. C.2.a (about p. 121)
- SOP 50 10 8.1, Sec. B, Ch. 2, Para. C.2.b (about p. 133)
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