How to Find SBA Debt Relief

If you’re having trouble repaying your SBA loans — loans backed by the government’s Small Business Administration, it’s important to seek out SBA debt relief as soon as possible. Failing to repay your SBA loans as agreed can have serious consequences and lead to aggressive collection tactics.

Are you struggling to repay your SBA business loans? Here’s what you need to know about SBA debt relief and how to get it.

What Is SBA Debt Relief?

SBA debt relief refers to the various assistance and hardship options offered through the Small Business Association and lenders who issue SBA loans. As a borrower, your options will vary depending on the type of loan you have, your lender, the balance on your loan, and the unique hardship you’re facing. For businesses that cannot pay due to pandemic-related reasons, there are specific debt relief programs in place that may be able to help (more on this below). 

You may also be able to seek assistance from your lender directly. This help might include deferring your loan payments (paying them at a later time), restructuring your repayment terms, negotiating a smaller balance, reducing your payment amount or interest rate, or settling your debt entirely. These options will vary by lender and loan program.

The important thing is to seek help when you need it. Failing to pay your SBA loans as directed could seriously impact your life and finances. The government could:

• Withhold tax refunds and Social Security benefits

• Garnish your wages, meaning withhold part of your paychecks automatically

• Deny you other federal loans (including federally backed mortgage loans, student loans, and more)

• Charge collection fees, often as high as 30% of your total debt balance

• Take legal action against you

• Revoke your professional or vocational license

• Place a lien against your property

• Seize the collateral you put up for the loan (your car, house, etc.)

You may also be on the receiving end of aggressive collections attempts, which could continue for years or even decades if the debt remains unpaid. Additionally, your credit score will take a hit.

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What Kind of SBA Debt Relief Is Available?

The only official debt relief options that the Small Business Administration has in place are those for pandemic-related hardship. The CARES Act — the Coronavirus Aid, Relief, and Economic Security Act — that Congress passed in March 2020 established these, and many are still available today.

If you have 7(a), 504, or SBA microloans, the government will make up to six months of payments on your behalf. (If your loan is currently in deferment, it will commence those six payments on the first due date once your deferment period ends). In some cases, you may be able to get more than six months, though this depends on funding availability. The SBA encourages borrowers to contact their lenders to discuss additional payment assistance.

EIDL (Economic Injury Disaster Loan) borrowers received automatic deferral of their payments and interest starting March 1, 2020. The SBA recently extended this relief program another six months, giving these borrowers a total of at least 30 months of assistance. Keep in mind: Interest continues to accrue on your balance during this deferral period; you just don't have to pay it until later.

If you took out a Paycheck Protection Program loan during the pandemic, you might be able to apply for forgiveness of your balance. Your eligibility will depend on when you took out the PPP loan, your lender, how much you used on payroll costs and various other financial details. See the SBA's guidance on PPP loan forgiveness for more information. Unlike the other relief options, you will actually need to file an application and submit documentation for this one. It will not be implemented automatically.

Automatic deferral process

The SBA Small Business Debt Relief Program was designed to help vulnerable businesses survive ‌the COVID downturn. Under the CARES Act, the SBA covered six months of regular monthly payments for borrowers with a 7(a), 504, or Microloan in regular service as of March 1, 2020.

If you were one of those business owners, you could receive this relief without applying or jumping through any hoops. Automatic payments to your lender would have stopped and then restarted in six months. If your loan was in deferment, the SBA would make six monthly payments for you once your deferment period ended. 

You’d never have to repay the SBA for the six payments made on your behalf. Interest on your loan balance would have continued to accrue while the SBA paid your loan. After six months, you'd have been expected to resume your loan payments, or you might have been eligible for additional assistance under the Economic Aid Act. 

The SBA Small Business Debt Relief Program is no longer available.

SBA Debt Relief Options Through Your Lender or Servicer

The Small Business Administration rarely issues loans directly. Instead, private lenders fund these loans with the SBA’s backing and then transfer the loan to a servicer to keep records and manage payments.

So, it’s usually better to contact your lender or servicer directly when you’re having difficulty making payments. They may have specific relief or assistance programs they can offer you or be willing to restructure your loan. 

Some common business debt relief options include:

• Extending your repayment period: Your lender may allow you to lengthen your loan term, for example, from 10 years to 20 years.This move lets you spread your balance over a longer period, thus lowering your monthly payments and making them easier to pay. Keep in mind: This will mean paying more in long-term interest, so consider this carefully before extending your loan term.

• Modifying your loan: Your lender may also offer to make other modifications like reducing your interest rate. This can lower your monthly payment and make repaying your balance easier.

• Deferring your loan or putting it in forbearance: Deferral and forbearance put your payments on pause due to financial hardship. These amounts are usually added to the end of your loan term, though there can be other arrangements. Interest may or may not accrue on these plans.

• Settling your loan balance: In some cases, a lender may be willing to settle the debt entirely. They may allow you to pay a smaller balance in exchange for repaying it immediately.

Again, these options vary based on your lender, servicer, loan type, loan balance, and the exact type of hardship involved. Contact your lender’s customer service department to get the full breakdown of what kind of relief might be available in your case, and be ready to provide documentation related to your hardship. Lenders often require this before assistance can be issued.

Effects of non-payment

It’s important to understand that SBA debt relief requires you to resume making payments to your lender once any forbearance or deferral ends. Your lender will probably reach out to you if you’re behind on your payments. You may be able to avoid loan default by bringing your account current over time. 

Here’s how the collection process might go for a typical SBA loan when you fail to pay it as agreed:

• Your lender attempts to contact you and get you to make payments on your loan. You can talk about your money problems with the collection or loss prevention department. Lenders often want to avoid a default. Your lender may lower your payment by extending your loan term or by cutting your interest rate. 

• If you don’t reach an arrangement with your lender, it will probably put your account into default status. You'll get a letter saying you have to pay the whole balance within 30 - 45 days or lose the collateral you put up to secure the loan. That might be business bank accounts, accounts receivable, real estate, machinery, inventory and/or equipment. 

• Borrowers who own at least 20% of the business are required to personally guarantee their SBA loans. With a personal guarantee, your personal assets, including your home, may also be up for grabs. 

• If the lender can't collect the full balance, the SBA pays the rest of what you owe. Then, the agency will attempt to collect from you, and it can be a tough creditor.

• The SBA collection process begins with a letter. You have 60 days to respond, or your account will be transferred to the U.S. Treasury Department. Your choices are to repay the loan or submit an offer in compromise (OIC).

• The OIC allows you to negotiate a settlement for your balance. To submit an OIC, you must first close your business and liquidate its assets. The SBA says, “Don't be misled, this is not loan forgiveness. You'll still be responsible for at least part of what you owe after liquidating assets.”

• If you pledged your home as collateral, the SBA will check your home value and isn’t likely to settle with you if there is enough home equity to cover what you owe. 

• The SBA investigates your financial situation and makes a decision about your OIC. It prefers lump sum settlement offers to payment plans. 

• Expect to get a 1099 form for any forgiven amounts. The IRS may consider this amount taxable to you. 

The SBA might clear your remaining balance by asking the Treasury Department to withhold your tax refunds or social security benefits, or even garnish your wages or bank account. The government might also deny you other federal loans, like mortgages or student loans.

Where Else Can I Find Business Debt Relief?

If you’re not eligible for help from the Small Business Administration or you’re uncomfortable negotiating directly with your SBA lender or servicer, there are other places you can find business debt relief alternatives that you might consider.

First, you can employ a debt relief company. These companies work on your behalf to negotiate a settlement for your SBA loan and other debts you might be dealing with.

Another option is to hire a debt relief attorney. They can be helpful if you’re dealing with constant collections attempts that feel aggressive or harassing. They can also assist if the government has started garnishing your wages or taking other extreme measures in light of your non-payment.

Finally, bankruptcy may be an option. With Chapter 7 bankruptcy, you may completely discharge your SBA loans (meaning you won't need to repay them) and various credit cards, loan balances, and other debts you're unable to pay back. With Chapter 13 (only those with the lowest incomes are eligible for Chapter 7), you pay into a court-ordered plan for three to five years to repay some or all of what you owe. After making all prescribed payments, any remaining balances are discharged. 

Consider bankruptcy only after carefully weighing the consequences. Bankruptcy creates a public record that anyone can see, and it can stay on your credit report for seven to 10 years. On average, bankruptcy drops your credit scores between 130 and 200 points.

Is SBA Debt Relief Taxable?

If you're eligible for one of the several pandemic-related business debt relief options, you might be wondering how to account for that SBA debt relief on your taxes. Are payments made by the government on your behalf taxable? Will they eat into your annual tax refund?

Fortunately, the answer is no on both counts. According to the IRS and SBA, “any payment described in section 1112(c) of the CARES Act shall not be included in the gross income of the person on whose behalf such payment is made.” This means you will not need to account for the SBA debt relief payments made on your behalf on your returns, nor will you have to pay taxes on those amounts. The payments also cannot impact your eligibility for various tax deductions (including those pertaining to interest payments).

If you have other concerns about how your SBA debt relief efforts will impact your tax returns or refund, talk to your tax professional or a Certified Public Accountant. They can provide answers specific to your situation and finances.

Get Help With SBA Debt Relief

If you’re wondering where to find business debt relief, start by consulting a debt professional. They can detail your full range of options and point you toward the most appropriate one for your goals, budget, and finances. SBA debt relief professionals may also be able to help you deal with other unmanageable debts by putting you into a debt management plan. These can be good options if you have several large debts you’re unable to pay.