ND Loan Liquidation/Purchase Information

The following steps provide a brief overview to help lenders get started in liquidating SBA guaranteed loans, followed by the process of requesting SBA to honor its guaranty (i.e. purchasing the guaranteed portion of the loan).

1. Lenders must notify fsc.servicing@sba.gov that the loan is being transferred to liquidation status. Include the borrower name and the loan number in subject line.

SBA requires all lenders to make site visits and prepare a detailed report containing an inventory of remaining assets and an assessment of their condition and value. Site visits must be performed within 60 days of an unremedied payment default or sooner if there are assets with significant value that could easily be moved or depleted. If a payment default does not exist, but an event has occurred which would cause the loan to be placed in liquidation (i.e., bankruptcy filing, business shutdown, or foreclosure by a prior lienholder), a site visit must be done within 15 days of that event.

When the loan is transferred into liquidation status, please remember to change the status code on your monthly 1502 status report to “5” for in-liquidation status. 

2. Proceed to liquidate the loan per prudent, commercially reasonable lending/liquidation practices.

3. Develop a liquidation plan - sample of plan SBA Form 1979 - www.sba.gov/document/sba-form-1979-liquidation-plan-format

4. Monitor the business closely. If inventory is sold, the funds should be used to pay down the note. Apply the payments to Principal first. Monitor the cash receipts. Monitor expenses. Allow the business reasonable expenses - such as salaries for staff. May be prudent to have all cash paid to the lender and the lender makes sure that none gets paid to unsecured creditors.

5. Lender must ensure the sale is proper and cash is applied to the note. (It may be prudent to have the business operator liquidate the business. The operator may know how to liquidate to get the most out of the inventory.)

6. Track everything. Document everything. You will need to be able to show your work to SBA to justify the actions that you took. Collect the money for the collateral to pay down on the loan minus reasonable liquidation costs.

7. Generally, your liquidation plan will be approved after you submit for purchase. However, please note that certain loan actions involving unusual issues do require prior written SBA approval. See SOP 50 57 2 at pages 23-24.

8. Lenders must submit a 10-Tab purchase packet requesting SBA to honor the guaranty. 

9. Submit Wrap Up Report - www.sba.gov/document/sba-form-object-object-sba-charge-off-tabswrap-up-report

If you have any questions, please contact:
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