Do You Have to Pay Back SBA Loans?

By Kieran Daly, 10 January, 2023

Do You Have to Pay Back SBA Loans?

As a small business owner, you may have taken out a loan to get your business started, pay for unexpected expenses, or to fund a new project or expansion. For many small business owners, these funds are obtained through the Small Business Administration (SBA loan program). However, in times of economic trouble, paying back small business loans can seem like a daunting task.

Knowing how to pay back your SBA loan and what is expected of you is the first step to understanding whether taking out one of these loans is right for you. The second step is to understand your other options, such as alternative financing, and how this type of financing may be a better option for you in some cases.

Do SBA Loans Have to Be Paid Back?

Yes, you must repay your SBA loans. SBA loans work the same as conventional loans, the only difference being that the SBA partners with lending institutions to provide small businesses with loans. Going through the SBA can benefit you by making it easier to obtain a loan because the SBA checks all lenders before partnering with them.

Another difference between conventional and SBA loans is that your loan application has to be approved by the lender and sometimes by the SBA. This makes for a longer application and approval process.

Despite these differences, you have to pay back SBA loans as you would conventional loans, with interest. While SBA loan forgiveness was available during the COVID-19 pandemic, it, unfortunately, expired in 2022.

How Does Repayment of an SBA Loan Work?

To make an SBA loan payment, you will need to create a borrower account on the SBA Capital Access Financial System (CAFS). Even though the SBA doesn’t provide the loans themselves, they compile all your loans through their approved lenders in this system. Once you log in, take these steps to make a payment.

  1. Hover over “Borrower” at the top left of the screen, then click “Borrower Search.”

  2. Click the loan number you want to make a payment on.

  3. Click the “Make a Payment” button and type in your credit card information to complete the payment.

If you want to set up recurring payments on your SBA loans, you will have to create an account on and complete the 1201 Borrower Payment form. Make sure to choose the “Bank Account (ACH)” option as your payment method.

It is important to note that not all SBA loans are the same. Because there are a few different SBA loan types – 7(a), 504, and microloans – and because there are different lenders to borrow from, SBA loan terms and rates differ from one loan to another. Below are some of the repayment requirements for each of these types.

  • SBA 7(a) Loan

    • Pay both principal and interest on a monthly basement

    • Interest rates are constant for fixed-rate loans and changes with variable rate loans

  • SBA 504 Loan

    • Maturity terms of either 10 or 20 years

    • Relatively low interest rates

  • Microloan

    • Maximum repayment period of 6 years

    • Interest rates typically between 8-13%, but it depends on the lender

What Happens if You Don’t Pay Back an SBA Loan?

If you don’t pay back an SBA loan, the lender will find other ways to collect the value of the loan you owe from you. If you are going through a rough patch and are struggling to make payments, you can reach out to the lender to try to set up another repayment plan. If, however, the lender is unwilling to work with you or you don’t contact them to let you know what’s going on, your loan will default after 90-120 days without repayment.

Next, the lender will send your debt to collections, which will take your promised business collateral if it’s worth enough. If that collateral isn’t enough, they’ll collect on your guarantee, something necessary for anyone who takes out an SBA loan and owns more than 20% of your business. A personal guarantee tells the lender that you will use your personal assets to pay off debts when necessary. They may also take from personal collateral if you put any down. Collections may even file a lawsuit to get the money from you if you aren’t making payments.

If your personal assets don’t cover the amount of your debt, the remaining amount of your loan will be sent to the SBA. The SBA will give you 60 days to either pay your loan back or allow you to argue that you don’t owe that debt. Meanwhile, the SBA will pay off up to 85% of what’s left of your loan after the lender takes your personal assets.

Suppose you still owe money after those 60 days. In that case, the SBA will send your debt to the U.S. Department of Treasury, which will either have the Department of Justice file a lawsuit against you or take other actions to collect the money, such as:

  • Taking your tax refunds

  • Garnishing wages

  • Collecting on your Social Security money, military pension, disability money, or any other payments made to you by the federal government

Suffice it to say, an SBA loan, while great in some situations, may not be the best in others. Alternative financing may be a better solution.

Backd: Explore Alternative Financing as a Funding Option Today

Alternative financing through lenders like Backd offers working capital and lines of credit to help you pay for projects or unexpected expenses that you don’t have the funds for. At Backd, you can receive working capital in the amount of $10K to $2M. Or, if you’re more interested in a business line of credit, you can spend anywhere between $10K and $750K. What’s more, the application process takes less than 3 minutes, and you can receive funding within 24 hours of approval.

To start growing your business, apply for alternative financing through Backd.