Small Business Administration (SBA)Foreclosure Risk

P
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Verified customer

Beware of the "Great" SBA loans. The following story really happened. The borrower received a business loan for $250, 000. At the time he had only $100, 000 equity in his house. But the SBA lender put a mortgage of $250, 000 on the house.

Several years later the business went bad. The borrower still owed about $200, 000 on the loan. The SBA paid the bank lender its 75% guarantee, so the bank was whole. But the SBA required the lender to foreclose on the house to recoup its guarantee. By this time the house had appreciated, so the equity was about equal to the balance of the loan. No way could the borrower refinance. He would have lost the house except that a relative helped him out.

In effect the SBA agreed to a mortgage that was equal to 200% of the value of the house at the time! This is much worse than sub prime mortgages that are so much in the news. With the statistic that 90% os small businesses fail within 10 years, these foreclosures must be very common. When you ask the SBA about this, they say they don't maintain these statistics because they have the bank that actually does the loan process the foreclosure.

At a minimum the SBA should limit any lien on the borrower's residence to 90% of the value of the home at the time the loan is made.

The moral of the tale is beware of SBA loans. There is a good probability you will end up losing your house!

Responses

  • Po
    POed Aug 19, 2008
    This comment was posted by
    a verified customer
    Verified customer

    The SBA Guarantee is for the bank not for the borrower!!!

    0 Votes
  • Ma
    madame jones Jun 04, 2010
    This comment was posted by
    a verified customer
    Verified customer

    I figured there must be some advantage for the bank to foreclose on their SBA loans. My guess is that they get to recover that money because it is insured and then the cash from the foreclosure becomes a liquid asset and they can use the money to recoup some of their losses they've taken on sour home loans that are not insured. My question is does anyone know the LAWS about SBA foreclosure rules there must be some posted laws somewhere and NO ONE seems to want to give the information out, especially the local SBA office. Is it the same as regular loans...do you have to go 90 days past due before they can start the process or can they start the process just because you're not handing over your books for them to review? Are they even allowed to ask that you hand over your books? And is there a magic window time frame that is best for them to foreclose within?

    0 Votes

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