October 22, 2024
Adam Hoeksema
Many people are eager to take their small business to the next level. They apply for an SBA loan and use their home as collateral to secure the funds. It seemed like the perfect solution at the time—an investment in their business with the comfort of knowing they had the backing they needed. But a few years down the road, life changed. They needed to move to a different state and sell their home. Suddenly, the decision to use their house as collateral brought up a lot of questions and uncertainty.
If you received an SBA loan for your business and the bank required you to use your home as collateral, they likely have placed a second mortgage on it as additional security. Now, if you want to sell your home, what should you do? Are you allowed to proceed with the sale, or does the loan tie you to the house until it’s paid off?
Before selling your home, you’ll need to discuss your plans with the SBA lender. It’s important to do this ahead of time, rather than reaching the closing table and suddenly realizing that you need to pay off a portion or the entire SBA loan from the sale proceeds. Planning ahead will help avoid unexpected problems and delays.
When you speak with your SBA lender, they will carefully assess your situation before making a decision. Key factors that influence their assessment include the remaining balance on your loan, the financial performance of your business, and the amount of equity you have in your home. Depending on their evaluation, the lender may offer various options to help you move forward. These options could include partial paydowns of the loan or even releasing your home as collateral if you can provide another form of security. Understanding these factors will help you better understand your options and negotiate the best possible outcome.
Selling a home that serves as collateral for an SBA loan can seem challenging, but with the advance planning and right approach, it’s entirely possible and manageable especially if you have a good repayment history. If you have been missing payments right and left and then you ask the lender to release collateral you are likely to have a tougher time.
If you have any questions, feel free to reach out to us at support@projectionhub.com. We’re here to help.
