By Jeff Curl
“Can I discharge my SBA loan?” I get asked this question a lot from small business owners exploring bankruptcy. The short answer is “yes.”
But you must be aware of the terms of the loan. The Small Business Administration (SBA) typically does not give a loan without obtaining some type of personal guarantee in exchange. At the very least, this means that the loan – and the liability for that loan – extends beyond the business to you personally. If you own property at the time of the loan, it is common for the SBA to require as a term of lending the money, that you permit the SBA to take an interest in your property such as placing a lien on your home.
This goes to the heart of whether it is the business and/or the person behind the business that files bankruptcy. When a small business owner operates as a corporation or LLC, he or she often believes that the liability all rests with the business. The personal guarantees and liens of the SBA loan, however, make the business owner personally liable.
This naturally leads to the question of whether the business can continue to operate, should dissolve or should file bankruptcy depends on several factors. This includes the type of business entity, future viability of the business, chapter of bankruptcy, assets and debts. That is just the beginning; no one can create an exhaustive list of every factor to consider because it depends on all the facts surrounding your circumstances. And many of these factors apply to whether a personal should file personally. The amount of an SBA loan itself can often be the determinative factor of whether to file.
So, yes, a loan from the SBA is dischargeable in bankruptcy. Work with your attorney to understand how far the SBA loan extends to you personally, and what you and your business need to do to protect your assets and discharge your debts.