The Small Business Administration (SBA) is the arm of the federal government that seeks to promote entrepreneurship in America by acting as a guarantor for small business loans. This means that the SBA does not actually issue or fund any loans to small business owners, rather, they guarantee to lenders that the SBA will cover the cost of the loan should it fall into default. A small business owner who is approved for an SBA loan must then find a lender willing to service the loan, which becomes much a much simpler task since the risk posed to the lender becomes so small.
Requesting an SBA loan modification is a process that is virtually the same as requesting any other type of loan modification. The small business owner who desires a loan modification must make the request through their lender. Many wonder why a lender would be willing to modify a loan that has already been guaranteed by the federal government, and the answer is that the SBA has recently put pressure on lenders to modify loans rather than foreclose. In some instances, lenders are even offered incentives to modify loans rather than foreclose on them.
Since the SBA will be on the hook in the event the business owner can’t pay the minimum monthly payments, it is always wise for the borrower to contact the SBA and advise them of any financial trouble that they may be facing. This will allow the SBA to offer any advice that may be of assistance to the borrower. Since government programs and procedures are constantly being created or updated, a new option for a borrower may exist tomorrow that does not exist today.
The business owner seeking the SBA loan modification will apply for the loan modification through their lender and will submit any financial documents that the lender requires to make their decision. In addition to their application, the borrower will also need to submit income/loss reports, tax documents, and a hardship letter, just to name a few. Every lender handles their modifications differently, and one lender may require less or more paperwork than another lender.
Small business owners considering applying for an SBA loan modification need to keep in mind that just because their loan is backed by the federal government, it does not mean that the federal government will provide any assistance in dealing directly with the lender. This means that rude lending representatives, lost or misplaced documents, and a general attitude of unhelpfulness are all things that the borrower will have to deal with on their own. In most cases, the federal government will not offer direct assistance to any single borrower. The assistance that the SBA offers is usually very general, like showing borrowers how to fill out financial forms and telling borrowers about the latest government assistance programs. The SBA will never negotiate on behalf of the borrower for things like lower interest rates or principal reduction, which is why an attorney would be a very good investment if attempting to modify an SBA loan.
For more information about SBA loan modifications, contact attorney Gary Dote at McFarlin, LLP.