Switching Up Your SBA Loan Security? Here’s What You Need to Know

Imagine you need to swap out the collateral securing your SBA guaranteed loan – a move as straightforward as trading in your old car for a swanky new one but with a twist.
What’s the twist? Well, if you don’t stick to the rules, you court an unfortunate buzzword – the SBA loan default.

What’s that now? Don’t stress. My friends, I’ll walk you through all the ins and outs and help you dodge such scuffles. Let’s venture down this road together. And if you prefer to see and hear this information, our video lays it all out as well: Substituting Collateral.

Understanding the Art of Collateral Substitution

This whole process of substituting collateral doesn’t have to be rocket science. You’ve got to remember, in all of this, your new collateral should be similar in nature to the old or at least more appealing to the SBA’s watchful eyes (for instance, swapping an account receivable for a certificate of deposit).

Pro-Tip: Your substituted collateral’s recoverable value ought to be as much as or preferably more than your existing collateral. This sensible deduction, my friends, is based on an appraisal that aligns with the SBA‘s requirements.

The Golden Rules of Collateral Substitution

Rule 1: Here’s piece of advice from the Lawscape etiquette guide on collateral substitution: Keep the increase in any proposed senior lien to a mere 3.5% or less – anything more is pushing your luck.

Rule 2: A good credit history helps tremendously in the whole process, so it’s wise to have that in your arsenal too.

Rule 3: Your current financial statement should convey a sense of assurance that you have the capacity to meet all your obligations that will be standing after the substitution.

Rule 4: There must be enough equity in the collateral to securely staple down the SBA loan even after the proposed substitution.

Rule 5: The release and substitution of collateral must not jeopardize the ability to press upon the remainder of the collateral or collect the loan balance.

Rule 6: The release of the existing liens or earnings from the release must coincide with recording the new liens in the required priority position. Do ensure to do all of this in line with an escrow agreement affixed with the signatures of every party in the transaction.

You’ve pledged your home as collateral? Here are additional necessities for you:

Terms and Conditions Applied:

a. All earnings from the sale of your old home – minus funds needed to scratch off senior liens and the usual closing costs – must go either towards buying your new dwelling, be placed in an escrow account for future purchase, or be used to pay down the SBA loan.

b. It is expected that the equity value in your new home backing up your SBA loan should equate to or be more than the present residence’s equity.

c. Identify yourself as a safe bet by successfully juggling the release of the existing lien and the recording of the new lien – all under the watchful eyes of the required priority order. And yes, you guessed right – an escrow agreement signed by all parties involved still holds sway.

d. Lastly, make sure you provide the title, hazard, and flood insurance details.

Contact Lawscape Now!

Do you smell the aroma of an SBA loan default cooking up, or better yet, you’re already knee-deep in one? The cavalry is here; reach out to Lawscape at the Lawscape today. You can either visit our website Lawscape or give us a call at 1-212-460-5004 to book your consultation.

We’ll dissect your SBA loan hiccups and guide you towards viable solutions such as an SBA offer in compromise for your SBA loan default.

Why Choose the Lawscape?

The credentials are rather impressive – we’ve resolved millions of dollars in SBA Debts, offering compromises and negotiating repayment agreements which saved our clients from the dark bowels of bankruptcy and home foreclosures.

Did I mention defending millions of more dollars in Treasury Debts through AWG Hearings, Treasury Offset Program Resolutions, Cross-servicing Disputes, Private Collection Agency Representations, Compromise Offers, and negotiated repayment agreements?

Our Nationwide Deftness in Representing Federal Debtors

Here’s the icing on the cake: we’re authorized by the Agency Practice Act to represent federal debtors across the country before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.

And that, my friends, is why the Lawscape should be your first port of call when dealing with Treasury or SBA Debt Problems.