13 Sep 23

Can SBA garnish wages?

| by

Last Updated on: 14th September 2023, 12:16 am

Can the SBA Garnish My Paycheck if I Default on a Loan?

Lots of folks take out loans from the Small Business Administration (SBA) to get their companies up and running. But what if you fall behind on payments? Can the SBA dip into your paycheck to get their money back? This is an important question if you ever struggle to pay off SBA financing.

The Short Answer

Yes, the SBA can garnish your wages if you default on one of their loans. After suing you and getting a court judgment, they can take up to 25% of your disposable earnings. This will sting if money’s already tight.

How SBA Wage Garnishment Works

The SBA can’t just grab part of your paycheck out of the blue. Here are the steps they gotta take first:

  1. You miss loan payments and default.
  2. The SBA sues you in court for the debt.
  3. The court enters a judgment in the SBA’s favor.
  4. The SBA serves a garnishment order on your employer.
  5. Your employer withholds and pays a portion of your earnings to the SBA.

This legal process can happen pretty fast if you ignore the SBA’s demands for payment. The judgment gives them the right to garnish your wages until the debt is settled.

How Much Can They Take from My Pay?

Federal law caps wage garnishment at 25% of your disposable earnings, which is your take-home pay after taxes. But state laws can set lower limits too.

So in a worst case, up to a quarter of your pay could get diverted to repay your SBA loan. That’s gonna sting if you’re already struggling financially.

Are Retirement Funds Safe from the SBA?

The SBA normally can’t garnish tax-deferred retirement accounts like 401(k)s without getting a special court order. Those funds are protected.

But they can seize regular payroll deductions you make to a retirement account. So your contributions wouldn’t be safe.

How to Prevent SBA Wage Garnishment

To keep the SBA away from your paycheck, avoid defaulting in the first place or act fast if you do. Some tips:

  • Ask the SBA about alternative repayment plans
  • Refinance or consolidate the loan to lower payments
  • Make partial payments to show good faith
  • Get experienced legal help responding to any lawsuits
  • File bankruptcy to pause collections, if that’s an option

The bottom line is you don’t want your pay getting docked by the SBA. Defaulting on their loans can lead to ongoing wage garnishment. So tread carefully when you borrow and take action quickly if you do default.


U.S. Small Business Administration, “Borrowers: Garnishment and Other Collection Actions”