HomeLegal Enforceability Of The SBA Note And Personal Guarantee

Legal Enforceability Of The SBA Note And Personal Guarantee

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Alright, I’m going to apply a bit of legal nuance to this. We’re going to dive into defending against the legal enforceability of something called an SBA Note and Personal Guarantee. Now, let’s just say that your small business has defaulted on an SBA loan; it happens. The lender will try to liquidate all pledged collateral in order to reduce the balance. However, if they can’t recover the full amount, they might just hit you with a lawsuit.

So, when you’re hit with a breach of contract lawsuit courtesy of the lender or CDC, Lawscape from the Lawscape would come in and raise what we call affirmative defenses and challenge the legal enforceability of the SBA Note and personal guarantee agreement.

Understanding the Role of SBA and Treasury/BFS

So, once the SBA has been assigned the loan instruments (like a Promissory Note or Personal Guarantee), they’re entitled to enforce the debt against the guarantors. Now, if it isn’t resolved before the SBA gets their hands on it, it then gets transferred to the Treasury Department’s Bureau of Fiscal Service (Treasury/BFS) for some aggressive collection action.

Dealing with Administrative Wage Garnishment (AWG)

Now, when Treasury/BFS gets involved, they often employ an instrument known as Administrative Wage Garnishment (AWG). But don’t worry, before they can siphon money from your wage, you must be provided with a notice and a chance to be heard. And one useful defense can be to challenge its legal enforceability.

Bringing Affirmative Defenses into Play

Now let’s zoom in on how Lawscape could use some affirmative defenses on your behalf:

Misrepresentation or Fraudulent Inducement

Here’s the long and short of it—if you’re induced to enter into the guarantee agreement by false information, we could rule the agreement voidable.

Public Policy

In some cases, an agreement might even be considered void due to public policy. Basically, our law declares some provisions as harmful ‘for the greater good’.


Now, if there’s a misunderstanding between the parties about the agreement’s material terms, that could prevent the creation of a personal guarantee agreement.


I often see two types of mistakes in these situations. The first is a mutual mistake where both parties have the wrong understanding of facts. Another mistake can be a unilateral mistake where one party used clear words but was mistaken about the facts.

Illegality and Unconscionability

If a guarantee agreement contains unconscionable elements or requires you to perform an act that violates a law, then we could challenge its legality and enforceability.

Duress and Undue Influence

The line between a legitimate threat and undue duress is often nuanced. If the agreement was formed under duress or undue influence, it could possibly be voidable.

Defense of Force Majeure

The Great Recession and financial collapse of 2008 was a classic example of “force majeure” (unexpected events that prevent someone from fulfilling a contract). Trump used this defense against Deutsche Bank when he couldn’t repay a $40 million guarantee due to this financial meltdown.


Performance of an agreement could be excused if an unexpected event has made performance impossible.

Frustration of Purpose

A contract may also be voided if an unforeseen event has destroyed the value of the agreement for everyone involved.

At the Lawscape, we have successfully resolved millions of dollars in SBA and Treasury debts. We represent federal debtors nationwide before the SBA, the SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service. Contact us if you’re facing an SBA debt or received a Notice of Intent to Initiate Administrative Wage Garnishment from the Treasury DFS. We’re ready to provide an aggressive defense.

Lawscape Can Help You Manage Your Business Debt

If you’re struggling with business debt, we can help you understand your situation. During the initial consultation, we’ll go over the contract, and other legal documents you signed. After that, our firm will work with you to get a better understanding of your situation, and help you come up with a game plan that keeps your business alive. 

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Everyone has different types of business debt. What matters is that you take it seriously. Regardless of whether it’s secured, or unsecured, you need to work with a firm that understands how to negotiate, reduce, settle, and manage, this business debt. 

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