29 Aug 23


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Last Updated on: 10th September 2023, 04:09 am

SBA Repayment Plan Negotiations

If a small business falls behind on SBA loan payments, the lender may offer repayment plan options to avoid default. Negotiating affordable SBA repayment terms requires understanding the lender’s flexibility, the SBA’s rules, and effective negotiation strategies.

SBA Lender Flexibility for Repayment Plans

For most 7(a), 504 and microloans, the SBA empowers lenders to modify loan terms within certain parameters without prior SBA approval. This gives lenders flexibility to negotiate repayment plans, including:

  • Extending maturity date up to 10 years beyond original term
  • Balloon payments if remaining term is less than 15 years
  • Interest-only payments for up to 6 months
  • Payment deferrals for up to 3 months

Lenders can also refinance debt, ease collateral requirements, or waive certain fees. However, lenders cannot unilaterally reduce interest rates or forgive principal or interest.

SBA Rules Limiting Repayment Plan Flexibility

While lenders have discretion, the SBA’s loan program requirements limit repayment plan options. Key constraints include:

  • Term cannot exceed maximum for each loan type (10-25 years)
  • Payments must fully amortize loan by maturity date
  • Loans over $50,000 cannot defer payments more than 6 months total
  • Lender must obtain SBA approval for changes exceeding terms or amounts above

The SBA also prohibits re-aging delinquent loans by repeatedly extending the maturity date. Loans over 60 days past due generally cannot receive repayment plan concessions without SBA involvement.

Negotiating an Optimal SBA Repayment Plan

Effective negotiation strategies can help secure the most favorable repayment terms within the SBA’s constraints. Useful tips include:

  • Proactively communicate with lender before defaulting
  • Request payment deferrals before seeking maturity extensions
  • Emphasize how plan will improve cash flow and repayment ability
  • Have a detailed business plan and financial projections
  • Consider lender’s motivation to avoid default
  • Be cooperative and flexible to options within SBA limits

Involving an accountant or SBA expert can also help demonstrate the repayment plan’s feasibility and advocate for your small business. Honest communication and win-win negotiating increase the odds of an optimal outcome.

Alternatives to SBA Repayment Plans

Beyond repayment plans, the SBA and lenders have other options to help struggling businesses avoid default, including:

  • Refinancing with longer term SBA loan
  • Refinancing with private loan to pay off SBA loan
  • Interest rate reduction based on documented hardship
  • Partial SBA loan forgiveness based on statutory exceptions
  • Debt restructuring under Chapter 11 bankruptcy

However, these options require extensive financial analysis and SBA approval. For most borrowers, negotiating a repayment plan provides the easiest short-term relief.

Consequences of Defaulting on an SBA Loan

Falling behind on payments triggers consequences even if a repayment plan is ultimately approved. Potential default penalties include:

  • Higher interest rates due to SBA honoring guarantee
  • Accelerated maturity making entire balance due
  • Foreclosure proceedings on collateral
  • Tax liens on business assets
  • Negative credit reporting hampering access to capital
  • Legal judgments and collection activities

Default also eliminates eligibility for future SBA assistance. Avoiding these outcomes through a prudent repayment plan is crucial for small business survival.

Key Resources

Avoiding SBA loan default is critical, but lenders have flexibility to help. With financial diligence and savvy negotiating, small business owners can secure repayment plans to successfully manage cash flow challenges. Expert assistance can facilitate constructive agreements for debt relief without the severe consequences of default.

SBA Repayment Plan Negotiations

When a small business falls behind on repaying an SBA-backed loan, negotiating an alternative repayment schedule with the lender can help avoid devastating consequences like foreclosure or bankruptcy. The SBA and lenders aim to help borrowers regain solid financial footing if possible. Understanding the repayment plan options and negotiating effectively enhances the chances of successful loan workout arrangements.

Common Causes of Repayment Difficulties

Some common reasons small business owners struggle to repay SBA-guaranteed loans on schedule include:

  • Revenue declines due to economic downturns, lost clients, or other external factors.
  • Overexpansion leading to excessive debt burdens.
  • Poor financial management and lack of adequate capital reserves.
  • Unexpected losses from events like natural disasters or lawsuits.
  • Owner disabilities or deaths upending operations.

Lenders realize unforeseen circumstances can befall almost any business and appreciate upfront communications about repayment challenges.

First Step – Contact the Lender

At the first sign of trouble making payments, the critical first step is contacting the SBA lender to explain the difficulties. This opens a dialogue on creating revised repayment arrangements to cure the delinquency.

If possible, provide documentation like financial statements, tax returns and projections to substantiate hardship claims and support proposed new terms.

Ask the lender what repayment plans they typically offer and provide. This provides a framework to negotiate customized terms.


One option some lenders may grant is a deferment allowing the borrower to temporarily suspend making payments for a defined period, usually 2-3 months. This provides breathing room to stabilize cash flows.

Interest still accrues during deferments so repayment burdens are higher afterward. Deferments are usually only offered once over the loan’s term.

Full or Partial Refinancing

SBA lenders also have discretion to refinance or restructure loans to make repayment more affordable. This may mean:

  • Extending the maturity date and re-amortizing the loan balance over a longer term to lower payments.
  • Converting a variable rate loan to a fixed rate to reduce interest volatility.
  • Dropping the interest rate to reflect current market conditions.

Refinancing provides lasting payment relief but usually requires an updated credit evaluation.

Lower Regular Payment Amounts

Lower payment sign

Lenders can also create debt repayment plans involving reduced regular installment payments over a set period – often 12-24 months. This temporarily lightens the payment burden while principal remains mostly unchanged.

When the special plan period concludes, payments revert to the normal amount unless additional modifications get negotiated.

Interest Only Payments

Some lenders permit periods of interest-only payments where the borrower pays just enough to cover accruing interest charges without reducing loan principal. This significantly cuts near-term payments.

Interest-only plans provide temporary relief but with the trade-off of greater costs over the full repayment period.

Principal Deferrals or Forgiveness

In some hardship cases, lenders allow short-term postponement of having to pay down principal loan balances along with interest. This temporarily lowers payments to assist recovery.

Partial principal forgiveness is possible but rare. Lenders must absorb the forgiven amounts as losses.

Collateral or Guarantee Modifications

If lacking adequate equity or collateral to restructure a struggling SBA loan, the lender may request additional guarantees or security as a condition. This reduces risk when providing repayment leniency.

Before agreeing, carefully consider the long-term consequences of altered guarantee or collateral terms.

Filing SBA Workout Requests

If a lender rejects reasonable repayment modification requests, the SBA has authority to intervene and direct lenders to provide debt relief in viable hardship situations. Filing SBA Form 1193 communicates repayment difficulties directly to the SBA for review.

The SBA aims to balance lender interests with helping small businesses survive rough patches.

Avoiding Pitfalls

Warning sign

When negotiating repayment arrangements, potential missteps to avoid include:

  • Failing to get all modified terms in writing before implementing changes.
  • Accepting unrealistic payment schedules bound to redefault.
  • Resisting lender requests for updated financial information.
  • Withholding facts about the business’s difficulties or delays.
  • Missing modified payment deadlines without communication.

Honor all agreements and maintain open dialogue with the lender.

Securing Expert Assistance

Business meeting

Trying to negotiate SBA loan repayment plans without experienced assistance risks subpar outcomes. Seeking help from professionals like attorneys, accountants or dedicated consultants can substantially improve results.

They offer knowledge of realistic options, lender psychology, documentation preparation, deterring overreach and driving the hardest bargain.

Don’t Delay Action

If an SBA loan balance is becoming unmanageable, time is of the essence to address the situation before it deteriorates beyond repair. The most favorable workout arrangements happen before payments are missed or relationships with lenders become adversarial.

Being proactive improves the chances of negotiating a repayment plan that benefits all parties.

With patience and expert counsel, struggling small business owners can often successfully restructure SBA debt and survive through rocky periods.

Helpful Resources