Can the SBA Foreclose on an SBA Loan?

The Small Business Administration can foreclose on an SBA loan if you default on payments. Learn more.

The U.S. Small Business Administration (SBA) provides loans to homeowners to help them rebuild their home or business following a natural disaster, such as Hurricane Sandy. However, if you default on the payments, it is possible that the loan could be foreclosed. Read on to learn more about SBA disaster loans and foreclosure of these loans.

(Learn more about how foreclosure works.)

About SBA Disaster Loans

The SBA offers low interest, fixed-rate loans to fix property damaged or destroyed in declared disaster areas. The loans can be used to repair or replace:

  • real estate (home or business)
  • personal property
  • machinery
  • equipment, and
  • inventory.

SBA disaster loans are available for:

  • homeowners
  • renters, and
  • businesses.

Different Types of SBA Disaster Loans

Here are the various types of SBA disaster loans that are available for different types of borrowers.

Home and Personal Property Loans

Homeowners may apply for up to $200,000 to restore their primary residence to its pre-disaster condition. Renters and homeowners may be able to borrow up to $40,000 to repair or replace personal property (such as furniture or clothing) that was damaged or destroyed in a disaster.

Business Physical Disaster Loans

The SBA also provides loans to businesses that are physically damaged in a disaster. Physical Disaster Loans may be used to repair or replace damaged real property and business equipment that is not covered by insurance.

Economic Injury Disaster Loans

Businesses may also qualify for a disaster loan from the SBA to help pay for ordinary and necessary operating expenses until normal operations resume if the business suffered economic injury as a result of a disaster (even if no physical damage occurred).

Military Reservists Economic Injury Disaster Loans

Loans are also available for eligible small businesses that cannot meet ordinary and necessary operating expenses because an essential employee was called to active military duty in his or her role as a reservist. These loans are intended to provide the working capital needed by a small business to meet its obligations until operations return to normal once the essential employee is released from active military duty.

To learn more details about the different types of SBA disaster loans, see our article Getting an SBA Loan After a Natural Disaster.

Foreclosure of SBA Disaster Loans

Since SBA disaster assistance is given in the form of loans, not grants, borrowers must agree to pay back the money that the SBA provides. (SBA disaster loans can be issued by the agency itself or may be obtained from a participating lender. If you obtained your loan directly from the SBA, then the SBA will service the loan. If you obtained your disaster loan from a participating lender, that lender is responsible for servicing your loan.)

For certain SBA disaster loans, borrowers are required to provide available collateral such as:

  • a lien on the damaged or replacement real estate
  • a security interest in personal property, or
  • both.

If the borrower then defaults on the loan payments, the real estate can be foreclosed either judicially or nonjudicially, depending on state law and whether or not the mortgage contract contains a provision granting a power of sale. Learn more about power of sale (nonjudicial) foreclosures.

To learn more about the difference between judicial and nonjudicial foreclosures, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?

If you are having trouble making your SBA loan payments due to reasons that are substantially beyond your control and are worried about an impending foreclosure, you may request that the SBA suspend your loan payments or extend the loan maturity date (or both) to provide you with some relief.

For More Information

For more information about SBA disaster loans, go to To learn more about other available disaster programs, go to

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