My question is in regards to SBA-backed loans. Two and a half years after receiving an SBA-backed loan my business is running into serious financial difficulty. We are incorporated as an S-corp. My question is about the "Personal Guarantee". If the business becomes insolvent, how likely is it that the lender will pursue actions to recover the loan amount through this guarantee? I’m afraid this could jeopardize personal savings and credit. I have consulted with a bankruptcy attorney; I just wanted to see what your general advice might be.
I am sorry to hear about your situation. Before I comment on what actions you can expect from the lender, I want to be certain that you meet with the lender ASAP to discuss your current predicament if you haven’t already done so. They may be willing to offer a holiday from payments for a brief period to give you some breathing room.
As far as what their likely actions will be in the event of default, it usually is not a pleasant environment. First, they will likely take over the business in an effort to liquidate the assets. Any shortfall will probably trigger any personal guarantees that you committed when the loan was granted.
Like any lender their preference would be to see you succeed. However, a cost of doing business for them is defaulted loans and so they can get aggressive in attempting to recapture their investment and then wipe the loan off their books.
While it is good to consult with a bankruptcy attorney, you should also meet with a lawyer that specializes in SBA transactions as they will be the more resourceful party to outline all of the options that are available to you. They will also be in a better position to possibly negotiate with the bank and stave off a foreclosure.
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|Richard Parker is the author of: How To Buy A Good Business At A Great Price, the most widely used reference resource and strategy guide for buying a business. He has purchased ten businesses in his career and has helped thousands of prospective buyers worldwide learn how to buy the right business for sale. He is also founder and President of Diomo Corporation - The Business Buyer Resource Center.|