If you default on an SBA loan, your lender will frequently file a lawsuit against the borrower and all guarantors. The lender does this as part of a mandated process to maximize recovery before requesting the SBA to honor their loan guarantee agreement. However, we find that even at this stage, a lender will usually consider a reasonable offer in compromise from a guarantor. If the offer is accepted, the suit can be dismissed prior to the entry of judgement.
In many cases, lawsuits are never filed by the lender, but once the SBA pays the loan guarantee to the lender, the lender will assign certain rights to the SBA to collect on the Note and Guarantees. In such situations, the SBA itself may decide to take legal action against guarantors who have significant non-exempt property (e.g., stock portfolios, rental properties) and/or substantial incomes.
If the SBA refers a matter for a civil action, then the U.S. Attorney’s office, Civil Division, will likely prepare and file suit against you in federal court. This can be a shocking event, but it does not mean settlement is off the table. If you have been sued by the U.S. Attorney in federal court, you should consult with your attorney immediately. If you do not respond correctly or in a timely fashion, certain rights may be lost and you may have a judgment entered against you. The suit is a wake up call that the government considers the debt collectible and that previous attempts were perceived as either insincere or woefully inadequate given your income and assets.
How long does the SBA have to file suit?
The SBA has 6-years to file suit against a guarantor in the absence of other events or agreements that might toll (suspend) this period of time. The limitations period will be measured not from the time of your default with the lender, but from the time the SBA took possession of the Note. In short, the government will get its full 6-years even if the transfer of the Note occurred near the end of the lenders statute of limitations (governed by state law). Once SBA owns the Note, federal law will be applied to determine the limitations period and will control in any lawsuit.