SBA loan defaults and how it can impact personal credit
by RyanBridgeMgt, Window Shopper
- Created: November 4, 2013, 1:35 pm
- Updated: August 8, 2014, 7:24 am
During most consultations, the question always comes up on how this defaulted loan will impact their personal credit score. Unfortunately there is no simple answer to this question and it varies case by case. Depending on how you handle and deal with the defaulted SBA loan, it can make a big difference on how personal credit will be impacted. If a defaulted borrower decided to file for a bankruptcy, it can have major implications on personal credit for up to 8 years. When the business fails, the bank will come looking for you and the business debt flows over to personal debt via the signed personal guarantee. We are seeing that more frequently the bank is turning the file over to a local attorney who will file for a judgment in court to pursue the defaulted borrowers for the balance of the loan. The judgment simply states that the borrower owes the money, which can be fought or acknowledged through a court hearing. These judgments can have long term or temporary ramifications on personal credit depending on which steps are taken next. If you choose to ignore the bank and the SBA, they can freeze your personal checking accounts, or even worse turn the loan over to the Department of Treasury. IF you default on an SBA loan, the bank has the right to pursue you for the balance, by virtue of your personal guarantee. However, if you take advantage of the fact that the bank (and the SBA) are willing and open to negotiate a settlement on balance due, you can settle this debt BEFORE it is recorded on your credit report. The SBA offers and encourages banks to allow borrowers to make an Offer In Compromise (OIC). If you can present an OIC that the bank feels is a fair representation of what the bank would get at the end of a long, costly legal pursuit, you can negotiate a settlement relatively quickly. It is not easy, and requires a deep understanding of the SBA, bank regulations, and the OIC process, but it can be extremely effective and is a much better alternative than either bankruptcy or legal judgments. I am always available via email or telephone to answer any questions about SBA default situations. Bridge Management Consulting - Ryan@BridgeMgt.com
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