Early Default

Newsletter Date: September, 2012

We recently received an inquiry from a lender about a purchase request that was labeled an early default despite the purchase request being made more than 18 months after SBA agreed to guaranty a portion of the loan.  To help you understand what constitutes an early default, please review the following excerpt from pages 16 and 17 of SBA Standard Operating Procedure 50-51-3, “Loan Liquidation:”

Early Default means a default that occurred within 18 months of the initial disbursement of the proceeds from an SBA Loan (unless the final disbursement occurred more than six months after the initial disbursement, in which case the 18-month period will begin from the date of the final disbursement), unless the Borrower cures the default and makes scheduled loan payments for 12 consecutive months after the initial 18-month period.

The following events of default would constitute an Early Default if they occurred within the specified 18-month period:

  • An unremedied failure by the Borrower to make one or more scheduled loan payments;
  • Funding scheduled loan payments from the sale of collateral rather than from business operations;
  • Deferment of more than three consecutive scheduled full payments;
  • Or a problem or event requiring the loan to be classified in liquidation status such as the filing of a bankruptcy petition.

As always, please contact your SBA representative if you have any questions.

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Region VII
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