How to turnaround your failing small business & stop
SBA loan default
If you are like many small businesses, you eventually hit a financial
roadblock. It may be because of the economy or because your customer's
needs have changed. But while you are struggling to survive, you
are not only dealing with cash flow problems but also facing SBA
loan default. If this is your case, you are not alone. Hundreds of
thousands of small businesses all over the country apply for and
get new SBA financing every year. And the majority of these will
go out of business during their first five years. Facing SBA loan
default is common.
So what should you do about it? Should you just default and not
pay back your loan? After all, the SBA or Small Business Administration
financially backs up all SBA loans through the bank. The bank stands
to lose nothing, so why should they pursue you?
SBA Loan Default and Personal Guarantees
Unfortunately your situation is not so simple. Even though the SBA
does back all of these loans, this is never enough of an insurance
policy for the bank. Try to recall what happened during your SBA
loan application process. Likely before you were approved, the bank
forced you to give a personal guarantee for the principal amount.
This meant that you, the small business owner, had to put up your
house, retirement fund or other personal asset to secure the SBA
financing. When facing SBA loan default, the bank has every right
to, and will, call in your personal guarantee. You will lose your
house and your personal assets to pay back the bank. Once the personal
guarantee is paid, and if you still owe money, only then does the
SBA backing kick in. That's it. End of story. The bank still gets
all its money and you lose if you default on the loan.
So what do you do when your business is financially strapped? The
most important point here is to prevent SBA loan default to begin
with. If your business is struggling, it's time to turn it around.
A business turnaround can get your company back on track financially.
If you create and follow through on a business turnaround plan, you
can make your business profitable again. Once you are profitable
pay off any SBA loans based on personal guarantees. This way you
will never find yourself facing SBA loan default again.
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