It is one thing to collect a loan and another thing to pay back the loan. The truth is that some people collect loans with the hope that they will meet up with the payment, but life sometimes happens. It means that there might be circumstances beyond their control that may stop them from paying back the loan.
What usually happens when you don’t pay back your loan will to a large extent depend on the source of the loan – the financial institution that issued the loan to you. But if you are dealing with Small Business Administration (SBA) loans, then you might find this article helpful.
The SBA loan program is government-backed financing that is open to entrepreneurs who want to start a small business in the United States of America. The SBA issues microloans to businesses that may require small financing to kick-start their business.
Small Business Administration loans help in reducing the risk that lenders and borrowers are exposed to when looking for business loans. Despite the fact that the SBA does not technically loan money to borrowers, they usually help in connecting borrowers to lenders that meet their very stringent requirements.
Having established what Small Business Administration (SBA) loan is all about, let us look at what will happen to you when you don’t pay back your SBA loan when it is due.
What Happens If You Don’t Pay Your SBA Loan?
Your Credit Score (Ratings) Will Drop
When you don’t pay back your SBA loan, one of the things that will happen to you is that your credit score (ratings) will drop and the implication is that you will no longer be credit-worthy. No financial institution would want to issue you a business or personal loan because they can’t guarantee that you will pay back the loan when the time comes.
As a matter of fact, even if you are able to secure a new loan with a bad credit score, you will be subjected to a very high-interest rate and that may not be good for your business.
Aside from the fact that you won’t be able to access new business loans or secure loans with a high-interest rate, you will also find it difficult to get goods on credit from your suppliers. No supplier would want to take the risk of releasing their goods to you on credit.
Your Personal and Business Assets Can Be Seized
Another thing that can happen to you when you fail to pay back your SBA loan is that you stand the chance of losing some of the assets you used as collateral when applying for the loan. Most lenders usually require that you tender some assets they can fall back on when you are not able to pay back your loan.
No doubt, there are cases where the assets you tendered may have depreciated a great deal and not be able to cover the loan you collected. In such cases, the lender will be left with no other option than to sue you as required by the law.
It is important to note that there are cases where an SBA loan defaulter will have their personal guarantor sued by the lender and this usually happens when the loan defaulter did not pledge his or her personal assets. If they still cannot get back their money through that means, the lender will hand over the debt to the Small Business Administration to collect it on their behalf.
At this point, the Small Business Administration will send you a notice to officially notify you that you owe a debt and you have defaulted. In the official letter notifying you of your debt, they will also give you 60 days grace period to pay back the loan or make a concrete arrangement with the lender on how you will pay back the loan.
If you did not respond to the 60-day grace period notice as stated in the letter, then the Small Business Administration will have no other option than to refer your debt to the Treasury Department for collection. The Treasury has several options when it comes to collecting debts from loan defaulters.
One of their options is to refer the loan defaulter to the Department of Justice so that they can file a lawsuit against you. Aside from filing a lawsuit against you, the Treasury Department may also take your tax refund and/or garnish your wages.