So, you took out an SBA loan for the expansion of your business operations and had all the intention to pay it off on time. However, you’re currently experiencing financial difficulties and your sales have dropped.Because of this, you’re having a hard time making your monthly payments and are potentially facing a default on your SBA loan. What can you do? Read on to find out.
When to Worry About Defaulting on Your SBA Loan
As you know, the SBA isn’t your lender, but it guarantees most of your business loan to SBA-approved lenders. That means you’re supposed to deal with a potential default with your lender. Lenders usually start their efforts to inform borrowers that their payments are late following a grace period of 10 days to two weeks. They could charge late fees, explains an experienced SBA preferred lender in MN. But the procedures and policies for late repayments differ from one lender to another.
Most lenders have designated departments for liaising with late-paying business owners. These departments try to come up with new repayment plans, such as interest-only payments or loan restructuring so that business owners won’t default on their SBA loan. However, it’s important to note that your lender might also place you in technical default even if you’re paying your loan on time.
Although rare, a technical default could occur if you violate the loan terms and conditions, such as taking on more debt, not providing tax returns for each year of your SBA loan, or getting more shareholders without approval from your lender.
How to Avoid a Default
If you’re having a difficult time making payments or fearing that you might default on your SBA loan, go directly to your lender to relay your concerns. Your lender would help you as much as they can so that you won’t end up defaulting on your loan. You could also consider increasing your sales or liquidating some of your equipment or property. Selling or closing your business is the last resort.
You need to be practical when dealing with a financial situation, so you can secure the best possible outcome for everyone involved. Do your best to make payments on time and learn where you can get help when you need it.