Raleigh SBA Loan Bankruptcy Lawyer

If you took out a Small Business Administration (SBA) loan and face challenges paying it back, you should contact Bradford Law Offices to discuss your available options. Filing for bankruptcy could help to alleviate the burden you feel. You could give yourself time to get your finances in order and keep your business afloat.

SBA loans have helped many small businesses continue operations. They often have lower interest rates and down payments than other available financing methods. However, defaulting on this type of loan could lead to severe consequences. Anyone who borrows money for their business with an SBA loan must guarantee repayment personally. That means your personal assets are at risk if you miss a payment.

At Bradford Law Offices, our Raleigh SBA loan bankruptcy lawyer and legal team can represent you in your bankruptcy case to resolve your debt. We understand the financial strain of owing money to a lender. You can face serious penalties and even more economic burdens when you can’t afford to pay. We want to help you with this matter so you can protect the future of your business.

Call the Raleigh business bankruptcy attorney of Bradford Law Offices at (919) 758-8879 right now for a confidential consultation and learn more about whether you qualify for bankruptcy. We’re available 24/7 to speak with you.

What Is an SBA Loan?

Small Business Administration (SBA) loans provide financing to small business owners. Entrepreneurs and businesses can use the loan they receive to grow or start a company.

The federal government backs these loans, and the SBA guarantees them. Private lenders make these arrangements instead of the SBA lending money to the borrower. This reduces the lender’s risks and provides easier access to borrowers.

Six types of SBA loans are available depending on the business owner’s needs:

  • SBA 7(a) Loan – This is the most common type of SBA loan out there. SBA 7(a) loans have low interest rates and long repayment terms. As a business owner, the maximum amount you can borrow is $5 million. You can use the funds to purchase real estate, a business, or business equipment. You can also use this loan for refinancing and working capital.
  • SBA CAPLines – Four different lines of credit are available through SBA CAPLines. The Working CAPLine provides funding for most operating expenses, such as inventory and labor. With Builders CAPLines, you can pay commercial and residential real estate construction expenses. Small businesses facing seasonal highs and lows can benefit from the Seasonal CAPLine. The Contract CAPLine funds the cost of necessary contractual work.
  • SBA Microloan – A six-year term and loan up to $50,000 are available through an SBA Microloan.
  • SBA Export Loans – This loan program targets small businesses interested in financing for participation in international transactions or expansion into foreign markets.
  • SBA CDC/504 Loans – Small businesses needing funding to build or buy owner-occupied commercial real estate can apply for the SBA CDC/504 loan.
  • SBA Disaster Loans – This program assists economic or physical disaster expenses. The borrower must show evidence of the negative impact of a disaster on their business.

Risks Associated with Personally Guaranteed SBA Loans

Unfortunately, if your SBA loan comes with a personal guarantee, your liability can extend beyond your professional finances. You risk your personal wages and assets if you default on the loan.

Unlike other types of creditors, the SBA can attach more types of income when funding a business owner. That means a judgment creditor could place a lien on your property, garnish your salary, or put a levy on your bank account.

Additionally, the SBA is allowed to take these actions through the Treasury Offset Program:

  • Garnish Social Security benefit payments
  • Garnish payments to your company from contractors, customers, and vendors
  • Garnish military benefits and retirement accounts
  • Garnish tax refund checks
  • Garnish federal employee benefits and retirement plans
  • Garnish federal salaries

The statute of limitations in the state where your loan originated doesn’t apply when you take out a loan from the SBA. Instead, the SBA can collect for six years from the date you made your last payment unless you face a lawsuit.

Other circumstances could also extend the statute, such as a loan backed by real property. If you default on the loan, the SBA could send it to the U.S. Treasury and attempt to recover repayment of the debt past the six-year statute of limitations.

Difference Between Default and Delinquency

Various circumstances can prevent small business owners from making timely payments on loans from the SBA. However, there is a significant difference between default and delinquency.

Delinquency means you fell behind on your payments. However, it does not necessarily mean the lender won’t allow you to pay the money you owe. Many lenders allow a grace period, giving borrowers several days or even a week to make a payment without considering it late. Others will charge a late fee but still allow payments without the loan going into default. The lender might even increase the borrower’s interest rate, resulting in higher monthly payments.

If you continue missing your monthly payments, your loan will default. Default means the lender marks the borrower as unwilling or unable to pay back the borrowed money. Typically, a lender will wait several months before starting the default process. The exact timeframe will depend on the terms of the agreement you signed.

Guarantees by the SBA

The SBA guarantees the loan, meaning the lender can receive part of the money owed if the borrower defaults. Typically, the SBA will guarantee as much as 85 percent of the borrowed amount for loans under $150,000 and up to 75 percent for loans over $150,000.

If your business loan has a personal guarantee, you must repay the money you borrowed with your business or personal collateral. Specifying the assets you will use as collateral is typical when signing a loan with a personal guarantee.

You could put up your business equipment, home, and other assets as collateral for the loan. This gives the lender the authority to recover those assets for repayment if you go into default. Lenders could also foreclose on your home, put it up as collateral, or garnish your wages.

If the collateral the lender collects doesn’t repay the amount you owe in full, they can file a claim with the SBA to cover the guaranteed portion. The SBA would send you a demand letter informing you of your responsibility to repay the amount it provided to the lender.

You must respond to the demand letter within 60 days. You can pay back the total amount or accept an offer in compromise. That means you could settle the case for less money than you owe.

If you don’t respond to the demand letter within the 60-day timeframe, the debt will go to the U.S. Treasury Department. At that time, the department could collect the debt by garnishing your Social Security benefits or wages, taking your federal income tax refunds, or placing a levy on your bank account.

Discharging an SBA Loan through Bankruptcy

You might be able to discharge your SBA loan by filing for bankruptcy. The effects of the discharge on your liability will depend on whether you file for bankruptcy personally or through your business. Many SBA loans come with personal guarantees, leaving business owners with minimal personal assets to file for bankruptcy.

Business owners filing for personal bankruptcy could end up with a discharged loan. However, this doesn’t resolve liability for the business. The SBA could pursue a claim on collateral used to secure the loan and repossess business assets or seize the company entirely. You must consider the future of your business when filing for bankruptcy and whether you want to continue or terminate operations.

Bankruptcy Options for SBA Loan Debt

As a business owner, you have three types of bankruptcy you can file under if you default on an SBA loan.

Chapter 7 Bankruptcy

If you face significant debt, you must meet the means test requirements to qualify for Chapter 7 bankruptcy. This test examines a person’s finances to determine if they meet the necessary criteria.

Chapter 7 bankruptcy is typically beneficial for a business owner planning to terminate operations. That’s because it liquidates assets to cover the debt.

The court will appoint a trustee to sell your nonexempt assets to pay back the money you owe to the SBA. You can discharge your debt and prevent the lender from taking collections actions against you during your ongoing case.

Chapter 13 Bankruptcy

Typically, Chapter 13 bankruptcy is for individuals. However, you could file for this type of bankruptcy if you run your business as a sole proprietor. This type of bankruptcy allows you to reorganize your finances to pay back the money you owe.

That means you can continue normal business operations and earn the income you need to get your finances in order while working off your debt. You also don’t have to liquidate your assets.

Once you file for Chapter 13 bankruptcy, there is an automatic stay. That means the lender cannot contact you anymore or make any effort to collect your debt. Wage garnishment and charging late fees or interest also can’t occur.

You must create and submit a repayment plan to repay the lender.

Chapter 11 Bankruptcy

You could restructure your debt by filing for Chapter 11 bankruptcy. This gives a fresh start to the borrower by providing the necessary time to restructure obligations and debts. Typically, you can continue to operate your business during your ongoing Chapter 11 bankruptcy case.

Contact Us

If you face SBA loan debt you can’t afford to pay, do not hesitate to contact Bradford Law Offices. An experienced and skilled SBA loan bankruptcy lawyer in Raleigh, NC, can review your case and determine whether bankruptcy is the right solution for you.

Call us at (919) 758-8879 or contact us online for your confidential consultation.

Written By: Danny Bradford Last Updated: July 25, 2022