When Do You Have to Pay Back SBA Loans?

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With the current economic hardships and still lingering effects of the Coronavirus pandemic, it’s understandable to think about how and when you have to pay back SBA loans. In this article, we’ll dive through all you need to know about paying your SBA loans and what you need to look out for.

As said above, current times have not been kind to many small business owners. And if you're feeling the pinch of inflation and fears of a looming recession, you’re not alone. Many small businesses continue to suffer and are very concerned with the talks of a recession.

But more important than that, it’s your small business, and as a business owner, it’s your duty to clear it through hardships. But you cannot succeed without repaying the loan program to the lenders — in this case, the SBA.

In this article, you’ll learn everything you need to know about the SBA loan offering program, as well as:

• How to pay back your SBA loan;
• Should you pay the SBA as soon as possible;
• When do you have to pay back your SBA loans;
• Are there any SBA loans you don’t need to repay;
• What happens if you fail to repay your SBA Loan;
• What can you do if you can’t pay the SBA back;
• A few tips to achieve your monthly repayment terms;

And more along the way. With this article, you’ll know not only when you have to pay back SBA loans, but you'll also learn important information that could prove very useful to you soon.

How to Pay Back an SBA Loan:

The process of paying back to the SBA is very straightforward. If you've been approved for one of the many SBA loan programs — SBA 7 loans, SBA 504 loans, or even SBA microloans — you can go to Pay.gov and fill out the borrower form present there.

Then, you can choose the repayment method and how you wish to pay. You can choose a one-off payment, which could be better for a smaller loan amount, or recurring payments by adding your bank account or other payment vehicles.

The sign-in on the Pay.gov portal is very straightforward. Also, when you apply for an SBA loan through a registered SBA lender, he will walk you through the repayment terms and how to make your first payment.

You may also like: SBA vs. revenue-based loans

Should You Pay Your SBA Loan as Fast as Possible?

While getting rid of the prepayment terms as soon as possible might look attractive to your cash flow, paying off early your SBA loan is not as straightforward as it seems. SBA loans are amortized — which means that the loan's value is spread out over the repayment terms.

Putting it simply, it means that the lender is expecting the value of the interest rate. For example, let’s say you’ve applied for an SBA 504 loan program with repayment terms of up to 25 years. Those 25 years include all the loan value for lenders in interest payments. If you decide to pay back the rest of the loan in the tenth year, you will endure some penalties.

Even after those penalties, you must think of what that strain would mean on your cash flow at the moment. Also, since the interest rates are tax deductible, it might be more beneficial if you stay put, especially during tax season.

Are There Any SBA Loans that Don’t Need to Be Repaid?

If you’ve heard the talks of an SBA loan that doesn’t require a repayment term, know that you’re not alone. With these current times, there were Small Business Administration implemented disaster loan programs to help small businesses and offer disaster assistance — in the form of the Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program (PPP loan).

The EIDL program works to provide relief to businesses that suffered a natural catastrophe — in the recent case, a pandemic. While there was some confusion due to the nature of the loan and the relief program, a rule of thumb is that if you’ve been approved for a Covid-19 EIDL loan, you have to pay back that loan, although with some different repayment terms of other SBA loans.

Many of the first applicants for the Covid-19 economic injury disaster loan were illegible for granted funds, and these EIDL grants don’t need to be repaid. But if your EIDL loan was approved as well as the grant, it’s likely been deducted from your loan amount. Although if you have any doubts, you can visit the sba.gov portal and get clarification.

When Should You Pay Back Your SBA Loan:

Unsurprisingly, there are various advantages and drawbacks to both options. If you prepay your SBA loan, it means one less strain on your cash flow. On the other hand, if you opt for maintaining your monthly payments, it means a better position when it comes to the IRS in tax season, as well as no penalties accrued.

While the advantages of staying put might be somewhat obvious, the last couple of years has proved that a healthy cash flow might prove more beneficial than interest rates, but SBA loans are not one-size-fits-all. Many SBA loans have a refinancing option, as many small business owners opted for during the pandemic.

The best course of action is — of course — the one you deem best for your business. If you prefer to take out an amount of your cash flow to repay your loan terms and remove the monthly payments, or if the monthly payments and subsequential stable cash flow is the best course of action for your small business. Make sure you plan and weigh both options, as they can very well be a deciding factor in your small business’s success.

What Happens if You Don’t Repay Your SBA Loan:

Firstly, there are two ways the U.S. Small Business Administration or any SBA-approved lender can proceed if you fail your monthly payments. While a default on an SBA loan is a serious problem, you might not be defaulting on the loan but just being delinquent. Here are the main differences:

Delinquent:

A lender might deem you delinquent if you failed to pay back a monthly payment, but he still believes you’ll repay the loan amount or at least a part of it. A lender will contact you and work out the best solution for you to repay the loan, but it’s advisable you don’t maintain the delinquent phase for long, as failure to repay can lead to:

• “Stains” on your personal and business credit score. As the lender marks the loan payment as late on your credit report.
• If you've missed more than one payment without previous contact, more heavy sanctions could be on the way, and you’ll receive a bigger hit on your credit report.
• If you don’t make payments between 90-120 business days, the SBA or the lender will move your loan program to default.

Default:

If you continue to fail the loan payments, the lender will move your loan to default. Safe to say, most borrowers should avoid this outcome as it can put your small business at risk. If the SBA or the lender deems your loan as default, here are a few of the effects:

• Your collateral or personal guarantee will be at risk. If you provided any — if not both— methods, it’s highly probable that the lender will try to seize them.
• The SBA or lender can move in and take legal action. They can start legal procedures and involve the U.S. Treasury. Then, they take some of your personal possessions, assets, or real estate and might take further legal action in a court of law.
• It will severely impact your credit score and eligibility. Your credit report will show that you’ve defaulted, making it that much harder to get a small business loan in the future.

What Can You Do if You’re Unable to Pay Back Your SBA Loans:

Although defaulting on a loan is a position no small business owner wants to be in, lenders want to avoid it too. If they continuously have lenders defaulting on loans, then they also have difficulties in seeing their money back. So, you can be confident that lenders will offer you their help to avoid this situation.

Let’s look at some ways you can look to avoid your loan application going into default:

1. Be Proactive and Communicate: Having financial troubles these days is unfortunate but more common than it might seem, and lenders know that. If you feel you might struggle with your monthly payments, be proactive and communicate with the lender. They’ll happily discuss a solution with you that can even involve refinancing and improved monthly payments.
2. Discuss Refinancing Terms With the Lenders: Continuing with the step above, if you see that your loan is putting a heavy strain on your cash flow, it could be beneficial to discuss with your lender a refinancing option. While an acceptance is not guaranteed, the SBA could very well opt for this route as a judicial option is time-consuming and difficult for both parties.
3. Offer to Pay Part of the Loan: This goodwill offer can be very beneficial and avoid judicial waters. Discuss with your lender, review your cash flow, and see what you can afford to pay back. It can save you from the lenders collecting your collateral and personal guarantees, or at the very least, it will be able to buy you some time.
4. Fill Out an Offer in Compromise: If all else has failed and the judicial route seems the most likely, you can opt to fill an offer in compromise. It works by offering a portion of the loan as settlement, but it’s advisable you seek an expert in this field and don’t try to “lowball” the SBA. Anything they deem false can lead to a denied offer in compromise or further complications with the law.

How to Improve the Chances of Making Your Monthly Repayments:

By now, you know that borrowers and lenders want to avoid further complications that a delinquent or default loan program can bring. But to put you on the safer grounds, let’s look at some ways and steps you can take to improve your chances and avoid going through difficulties on your loan program.

• Write a Business Plan: Writing a business plan is essential for acquiring business funding — from short-term loans, working capital loans, SBA loans, and more. But a business plan must also include all the details from your business and personal finances, improve cash flow, refinancing loans, reduce other payments, and much more that will guide you to success.
• Monitor Your Cash Flow: Get on top of your small business spending and profits. All the money that goes through your business must also pass through you. And if you include this step with the step above, you’ll be one step closer to making your payments on their due dates.
• Prioritize Your SBA Loan Repayments: While there are many repayments a small business owner must conduct, prioritizing the most important ones is a must. Keep a lump sum ready to repay at the end of the month, and you should have at least an emergency fund to pay back your SBA loan in case of an emergency.
• Keep Your Lender Informed: Not just when you believe you’ll go through a difficult time, but keeping the lender on par with your business developments can prove crucial if you happen to go through hard times. Better still if you share with them your business plan. It can lead to a refinancing term or a the very least, a more friendly settlement should it come to it.
• Look for Outside Help: If everything seems too overwhelming, you can also opt for outside help like accountants, business lawyers, or small business loan experts if you happen to need it. All can play a part in making your loan payments and even negotiating the refinancing options.

Is an SBA Loan the Best Option For You? What Types of Business Funding Can Prove Best for Your Small Business:

In this article, you saw the importance of paying back your SBA loan, and with any loan — be it from the financial system or an alternative lender — repayment terms must be taken seriously. But before you think about the repayment terms, you must first get your small business loan, and a lot of times, small businesses see their loan application denied by banks or the SBA.

If that’s the case with your small business, reach out to Biz2Credit and discuss with our team the best funding option available for your small business! With just 4 minutes of your time, you can get up to $2.000.000 in as little as 72 hours. Reach out to our small business funding specialists and get to know the best and smoothest funding option for your small business today!

FAQs

What are sba loans?

SBA loans are government-backed business loans offered by banks and other financial institutions. The Small Business Administration (SBA) guarantees these loans, reducing the risk for lenders. SBA loans can be used for various business purposes, including:

1. Working capital
2. Business acquisition
3. Tenant improvement
4. Equipment and machinery
5. Real estate purchases
6. Startup costs
7. Partner buyout
8. Expansions
9. Debt refinancing

How do sba loans work?

SBA loans are business loans that are secured by the SBA and are accessible through lenders like banks and credit unions: 

• Application: The process of applying for an SBA loan is straightforward. Apply through a lender, who will then apply for a loan guarantee to the SBA.
• Approval: If your loan gets approval, the lender will close the loan and pay the funds.
• Repayment: The borrower has the flexibility to repay the lender directly, usually every month, empowering them to manage their finances effectively.
• Guarantees: The SBA requires a personal guarantee with at least 20% business ownership from the borrower.
• Fees: A guaranty fee is charged based on the loan amount. 

How long are sba loans?

The maximum loan term is 25 years, with the possibility of extensions. For loans to acquire or improve tangible property, the term can be up to 25 years plus the time needed to finish construction or renovations.

How many sba loans can you get?

There is no limit on how many SBA loans a business can take if they meet the SBA's eligibility criteria and stay within the highest borrowing amount. However, there are some restrictions that you should know like: 

• Loan amount: The maximum loan amount depends on the type of loan, $5 million or $5.5 million.
• Credit score: It plays an essential role in securing an SBA loan.
• Collateral: Collateral is necessary for each SBA loan.
• Loan Repayment: The business must be in good standing with their current SBA loan(s) and make all timely payments.
• Eligibility requirements: The business must continue to fulfill the SBA's requirements.

What can you use sba disaster loans for?

The U.S. Small Business Administration (SBA) provides disaster loans to support people and businesses to recover from a disaster: 

• Home and Personal Property Loans: Can borrow up to $500,000 to repair or replace damaged or destroyed homes, cars, appliances, furniture, and clothing & renters up to $100,000 for similar purposes.
• Business Physical Disaster Loans: Available to businesses of all sizes, & can be used to repair or replace damaged or destroyed real estate, inventory, supplies, machinery, and equipment.
• Economic Injury Disaster Loans (EIDL): For small businesses, small agricultural cooperatives, and most private nonprofit organizations.
• Military Reservists Economic Injury Loans: Support businesses with operational expenses when an essential employee is called to active duty as an army reservist.

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