What They Don't Tell You About SBA Loans - Default:

We've all heard that the only way you can really tank your SBA loan is to miss a couple of payments, right? Did you know there are multiple ways, non-payment related, to be in default on 7(a) loans? How do you know if you have defaulted? What do you do when you realize that you are close? From SBA Form 147: 1. Default on any other loan with Lender. - Basically, play by the rules and make your payments on all loans with your bank, SBA or not. Pay extra close attention to the Business Loan Agreement because non-SBA loans have different rules. 2. Fail to preserve, or account to Lender's satisfaction, any of the collateral or it's proceeds. - All collateral must be kept in pristine condition, and cared for in a way to not impair its value or function, especially should the lender need to liquidate. 3. Fail to disclose any material fact, or make false or misleading statements, to lender or SBA. - Don't keep secrets from your lender or the SBA, and in the event you find yourself facing some scrutiny, do not lie to them. 4. Default on any loan or agreement with another creditor, if Lender believes the default may materially affect the Borrower's ability to repay their note. - Hint: they always believe that an external default is very bad and will lead to the snowball effect. Don't think that you are protecting the Sr. debt by not paying the rest of your creditors. 5. Fail to pay taxes when due. - This can and does include sales tax, business personal property tax, real estate taxes, payroll tax, etc. If it ends in the word "tax", pay it. 6. Become the subject of a proceeding under any bankruptcy or insolvency law. - This includes voluntary and involuntary, and covers all chapters (5, 7, 11, 13), regardless of the circumstances. 7. Have a receiver or liquidator appointed for any reason, or make an assignment for the benefit of creditors. - You can't engage a third party to liquidate business assets for the benefit of any lender (or yourself), and you can't assign (transfer ownership) any of these assets to said 3rd parties. 8. Have any adverse change in financial condition or business operation that Lender believes may materially affect the Borrower's ability to pay the note. - Closing the Business or a location, loss of clientele, default on lease agreement, death of partner, or anything that might reduce the capacity of the Business. 9. Reorganize, merge, consolidate, or otherwise change ownership or business structure without Lender's prior written consent. - This is big and happens A LOT. Don't decide to give your minority partner a majority stake a day after closing and don't plan on adding a couple HoldCos after the fact to skirt guarantees. 10. Become the subject of a civil or criminal action that Lender believes may materially affect the Borrower's ability to repay the note. - Don't: break the law, be under insured, defraud your clients, ignore labor regulations, ignore State or Municipal statute. If you are struggling but yet to default, your lender wants to work with you (most anyway) and will do what they can to prevent a full breakdown - BUT IF YOU DO DEFAULT - they can, and will: - Require immediate payment in full. - Collect all amounts from any borrower or guarantor. - File suit and obtain judgement. - Take possession of any collateral. - Sell, lease, or otherwise dispose of collateral at public or private sale. If any lender does the "just make your loan payment and you'll be fine" pitch, ask them what their Special Assets Group has to say about it. They have more power than you think they do. If your loan broker or attorney says this...run. From my Twixxer - https://x.com/SamJonesKCBiz From my Threads - redacted@samjoneskcbiz