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What is SBA Loan Forgiveness?

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SBA loan forgiveness is a process by which individuals or businesses that have Small Business Administration (SBA)-guaranteed loans can be relieved of the need to repay some of their loan amount, as described by Loan.com. One such program for relieving SBA loan debt is the SBA Disaster Loan Forgiveness Program, which is a formal program that forgives debt for business owners who operate a business affected by a severe natural disaster. Debtors must contact their creditor to attempt to negotiate forgiveness.

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The SBA itself does not actually grant loans but rather guarantees loans granted by private-sector financial institutions, reports Lendio. Some small businesses require capital but cannot acquire it through more conventional means and turn to SBA loans to meet this financial need. Though the SBA guarantees the loan, the debtor must negotiate with the institution that issued the loan in order to gain any forgiveness.

Forgiveness is a fail-safe that can help save borrowers from defaulting on their loan. Defaulting on an SBA loan has similar consequences for defaulting on any other type of loan, including negative repercussions on credit scores. It may be possible for borrowers to negotiate partial forgiveness for a single missed payment, notes the SBA. This may be an alternative to seeking forgiveness for the entire loan amount.

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