It happens. You miss one payment then you miss two, and then you miss more payments. And now you are not in a situation to pay-off your debts. Your debt is now a defaulted loan. A defaulted SBA loan is not like regular non-SBA loan debt. You need to have an understanding of the process while defaulting on SBA loan obligations. There must be some questions surfacing in your mind. Will I lose my home? Or, are they going to put me in jail?

Let’s see what’s there in the SBA loan collection process.

Want to settle?   


This is the very first step. Going default means you have violated some terms of the loan. You have missed a payment. Different banks have different rules. Most of the banks wait for 30 days and then make calls. Your bank will become seriously concerned when the payment is late by 60 days.

Demand Letter:

This is an official notice by bank saying that you are late. This notice says the bank does not appreciate this. When a bank sends you a notice, it does not necessarily mean the bank is going to sue you. However, when a bank needs to sue you, the attorney, first of all, makes sure the demand letter has been served. Once you are defaulted on SBA loan collection process and you have also received the demand letter, deal with the issue. There is no other option available to you.

Cease your business operation and liquidate your business assets:

SBA or a bank considers settling your SBA debt when you close your business and legitimately sell it as a whole.

Submit SBA offer in compromise:

You will have to submit this offer to your lender. You will have to produce SBA form 1150 and Form 770.

In case you want to hide and do not want to deal with the bank:

  • Default on your SBA loan.
  • Get demand letter

The next steps depend on your situation. 


The bank or lender will go for a legal action if it finds there is an asset you can liquidate to pay off the debt. The bank will go after your investments or cash you have in your account. In case your home with equity in it is pledged as collateral, there is a risk of foreclosure. The bank or lender can garnish wages as well.

Refer to SBA/Treasury:

Sometimes the bank or lender finds out that taking legal action will be wastage of time and money. Going after someone who cannot give anything, it makes no sense. However, you are not free. Once your file is in the hands of SBA, expect a 60 days letter. Now you have 60 days. You can work something out if you want. Your file is referred to the US Treasury if you give no response within these 60 days. Once your file is in the hands of the treasury, they will add 28% penalty and then they will demand 70% to 80% of the balance all in a single payment.

The SBA loan collection process is often hard to predict. If you are an SBA borrower, and you are in distress, deal with it. And, if you can’t figure out what you should do, work with a professional.

Author Bio:

Aliza Gavin is well known personality in field of banking and finance market because she is more professional in writing especially banking, finance, Loans etc. She has done job as an expert writer in different companies, recently doing job online for Dubai bookkeeping services providing company. Now She is trying to start her own business in field of all types of writing.