Applying for an SBA loan can be nerve racking. That’s especially true if you have some past financial issues, whether they include liens, judgments, or bankruptcies. These won’t disqualify you if you are transparent and upfront about them — but there are some things you ought to know.

Understanding Outstanding Liens, Judgments, and Bankruptcies

Liens: Not Just a Fancy Word

Liens might seem like a high-level financial term, but it's just a way of saying that someone has a legal claim over your property because you owe them money. Think of it as a kind of "IOU" attached to your assets. For example, if you borrowed money to buy a car and you're not up-to-date with your repayments, the lender could place a lien on your car. Until you pay back what you owe, the car isn't entirely yours.

Because a lien on your property impacts a lender's ability to use those assets as collateral, you should resolve any liens proactively before beginning the SBA loan process.

Judgments: The Result of Legal Troubles

A judgment refers to a court decision related to money you owe someone else. For instance, if a client took you to court for not completing a job you were paid for and the court sided with them, that's a judgment against you. You will want to resolve these before applying for any kind of SBA loan.

Bankruptcies: Handling a Financial Reset

Bankruptcies, in the simplest terms, are when you or your business can't pay back your debts and need legal help to get a fresh start. It's like hitting the financial reset button. For example, if your small clothing store isn't making enough money to pay back its loans, declaring bankruptcy could erase those debts or help you set up a plan to pay them off.

With SBA financing, lenders will typically require that you haven’t declared bankruptcy in the past three years. If you have a bankruptcy older than that, though, it doesn’t mean you’re off the hook: You should disclose this during the application process.

The Importance of Transparency in the SBA Loan Process

Building Trust With Honesty

Transparency about your financial hiccups isn't just about being honest — it's about showing your lender that they can trust you. By openly talking about any existing liens, judgments, or bankruptcies, you're saying, "Here's what's up. I have nothing to hide."

It's like telling your doctor about all your health issues: They can only help if they know what's going on.

Keeping Surprises at Bay

When you're upfront about your financial issues, it helps keep surprises away from the loan process. Just imagine you're selling a used car. The buyer would want to know about any problems with it before they hand over their money. The same goes for your lender. They want to know about your financial health before they give you a loan.

Preventing Delays and Denials

Hidden financial issues can pop up at the worst times and delay your loan approval process. In the worst-case scenario, it might even lead to a straight-up “no” from your lender. If you know about an issue, let your lender know as soon as possible. Be responsive to their questions, and it will measurably help.

By being open and transparent from the start, you're showing your commitment to getting an SBA loan and keeping things running smoothly.

Proactive Steps to Address Outstanding Financial Hurdles

Get Your Credit Reports

Your credit report is like a report card for your finances. It's the first place to check to uncover any liens, judgments, or bankruptcies. It shows where you stand financially and can help you understand what you need to address.

Seek Professional Guidance

Don't try to tackle these issues alone. Consulting with a financial advisor or a lawyer can give you strategies to resolve or lessen these financial hurdles. They can guide you through complex processes and legal jargon, making things easier for you.

Keep Your Lender in the Loop

Regular communication with your lender is essential. Keeping them informed of your efforts to address these issues not only demonstrates your dedication to the loan process, but it also helps them stay updated about your financial recovery.

Case Study: Closing a Loan Despite Hurdles

Michael, an aspiring restaurant owner, had always dreamt of owning his own Italian bistro. Let’s go through his experience and see what we can learn.

Discovering the Challenges

When he decided to apply for an SBA loan, the first step he took was to check his credit reports. It was there he discovered an old, unpaid debt that resulted in a lien on his home.

Seeking Professional Help

Instead of panicking, Michael consulted with a financial advisor and a lawyer to understand his situation better. They helped him devise a plan to resolve the lien. With a clear roadmap, Michael started working towards clearing his debt.

Communication Is Key

Throughout the process, Michael kept his lender informed about the steps he was taking to address the lien. He regularly updated them about his progress and any setbacks he encountered. This open communication helped build trust with his lender and kept them confident in his dedication to the loan process.

Overcoming Hurdles

With hard work and persistence, Michael managed to clear his lien, turning a potential roadblock into a stepping stone towards his dream. After some months, he successfully secured his SBA loan, enabling him to open the doors of his bistro.

Lessons From Michael's Journey

Michael's story shows that financial hurdles need not be an end to your dreams. By being proactive, seeking professional help, and maintaining transparency with your lender, it's possible to overcome these challenges and successfully close an SBA loan. It's a testament to the power of perseverance, transparency, and proactive action in the face of financial adversity.

Working with Your Lender: A Path to Successful Resolution

Your Lender Is Your Partner

Your lender is not just a source of money. They're your teammate on this financial journey.

Think of them as a guide who can help you navigate the complex terrain of financial hurdles. Just like a tour guide can lead you through, say, a dense forest, your lender can help you understand and tackle financial obstacles.

Clear Communication Leads to Valuable Insights

Keeping an open line of communication with your lender can lead to beneficial advice and support. It's like keeping your coach updated during a sports game. They can provide strategies and tactics based on the current state of the game.

Your lender can offer solutions and guide you based on your financial situation — but only if you’re clear about your obstacles.

Leveraging Lender Expertise

Your lender has the experience and knowledge to steer through these financial issues. They work with many small business owners, and they’ve likely worked through some notable speed bumps with other borrowers along the way.

Conclusion

Dealing with liens, judgments, or bankruptcies might seem tough, but these roadblocks are not impossible to overcome. With openness, a proactive approach, and good communication with your lender, you can secure your SBA loan successfully.

Your Entrepreneurial Dreams Await

Don't let past financial hurdles hold you back from your business dreams. Reach out for help, gather information, and let's start your journey towards securing that SBA loan. Just like our friend Michael, you too can overcome these challenges and turn your entrepreneurial dreams into reality.

Take the Next Step

Ready to take on your financial hurdles? Reach out to us, and let's navigate this path together, turning those financial hurdles into stepping stones towards your first — or next — SBA loan. Your business dream is within reach, and we're here to help you grab it.

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In this article:

How Liens, Judgments, and Bankruptcies Can Impact Your SBA Loan