When Loans Go Bad

In the world of SBA lending, time is rarely on your side when a loan begins to go sideways. What starts as a borrower missing a payment can rapidly snowball into a full-blown default, asset deterioration, or legal complications — and before you know it, you’re staring down an SBA loan liquidation process with escalating losses.

Your SBA loan team is busy; that’s a given. But a delayed response can turn a manageable problem into a financial disaster. Missed deadlines, unmonitored collateral, or delayed site visits lead to missed recovery opportunities. And when liquidations start coming in waves — as they often do in economic downturns or post-disaster cycles — even strong teams can become overwhelmed.

This is where experience and trusted partnerships make all the difference.

Responding quickly is critical — but so is responding correctly. Knowing when to restructure, when to engage legal, or when to write a check to protect collateral or cure a delinquency isn’t just about following a checklist. 

We’re huge fans of checklists, as you probably know, but they’re not a replacement for experience. It takes seasoned judgment to avoid throwing good money after bad or missing a chance to recover value.

Quick Tips for Managing Troubled Loans:

• Set internal red flags early: Define clear triggers for elevated monitoring or intervention.

• Lean on your partners: Experienced servicing and liquidation professionals can extend your bandwidth and provide important outside perspective.

• Train for triage: Your staff should know how to assess which loans need urgent action, and which can wait.

• Don’t fear the checkbook: Sometimes a well-timed payment to cover insurance, taxes, or other critical expenses can preserve far more value than it costs.

• Prepare for volume: If you’re seeing signs of increased defaults, or hearing rumblings of overall economic challenges, plan ahead. Backlog is the enemy of recovery.

Loans go bad and SBA loan liquidation happens. But how quickly you act — and who you have in your corner — often determines how bad they get. The right people, processes, and partners are your best defense against turning one bad loan into a SBA portfolio problem.

Want some help setting up those internal red flags – or reviewing your SBA portfolio for possible trouble spots? We offer SBA training, of course, and we can also provide ongoing support for SBA lenders on an as-needed retained-services basis. Give us a call at 877-576-0819, or drop us a note through our Contact form here. We look forward to helping you help your Borrowers!