So you’re the owner of a company that’s fallen on hard times and is behind on its SBA-backed loan. You signed the personal guarantee and you’re worried that this could negatively impact your personal credit report. Here’s the short answer: Under SBA rules, your lender reports the loan information to commercial (that is, business) credit bureaus, not to personal credit bureaus. That means that while you signed a personal guarantee on the loan, it is not reflected on your personal credit report.
A lot of people are searching this question - in fact, more and more since the pandemic, when so many of us took out SBA money: PPP, Economic Injury Disaster Loans, regular 7(a) loans. And there are two moments in time that matter to you: before default, and after default. And under SBA rules, the answer at both of those points goes to the business credit file, not your personal file. Now, the rules around reporting responsibilities for the PPP loans were pretty confusing when they were issued.
Report to Credit Reporting Agencies
I get questions about where this requirement comes from, so let me explain. It’s from SBA Standard Operating Procedure 50 57 (you guessed it), which follows the Debt Collection Improvement Act of 1996. Lenders are required to report to credit reporting agencies every time they make an SBA loan. That’s right - every time. They’re required to routinely report servicing, liquidation, and charge-off activity throughout the entire life of the loan.
So who gets reported? The business that actually borrowed the money - that goes to the commercial credit reporting agencies. The lender isn’t obligated to report the guarantors, that’s you, who also put their signature on the loan. What gets reported? The borrower’s name, address, and taxpayer ID number; the amount of debt and its status and history; and which agency or program the debt is from.
It’s confusing, I know, but there are actually two entirely different systems at play here. There are commercial credit bureaus that report on businesses, and then there are personal (consumer) credit bureaus that report on you, the individual. Because this loan falls under the SBA rules, the lender has to report it to the commercial credit bureau under your business’s TIN, which puts it on your company file. You guaranteed it personally, sure, but technically the lender isn’t required to report you as the guarantor.
The important thing to understand is that the lender is required to report the loan to at least one commercial credit reporting agency. Common examples include Dun and Bradstreet (D&B), Equifax Small Business Enterprise, and Experian SmartBusinessReports. They report it when the loan gets disbursed and then on a quarterly basis after that, all the way through the life of the loan, including when the loan gets charged off.
So, why does the SBA ask for this information? The answer is pretty straightforward: it gives other creditors an indication of how much your company already owes. Other lenders and companies can see the total amount of the business’s existing debt. As an aside, the SBA mentioned that it considers credit-conscious business owners more likely to pay their bills on time if they know their payment history will be reported.
Here’s the good news before we get to the bad: As long as you’re making the payments, everything should appear on time on your business credit file, provided the lender reports it. Your personal credit report shouldn’t reflect the SBA loan at all. However, if another lender pulls your business credit file, they’ll see the total amount of debt the business has taken on.
When a business defaults on a loan, many people think the reporting ends there. In reality, the lender is supposed to continue to report that they’re servicing, liquidating, or charging off the loan to the commercial credit bureaus. This means the default shows up on your business credit report for anyone who checks it. The rules don’t require them to report the guarantor on the personal side, but a credit report is only a record of what was reported, not a legal document that erases obligations. The personal guarantee you signed doesn’t go away just because it’s not on the report.
Not Every Lender Reports
Now a caveat. One that could matter a lot to you. Not every lender reports SBA loans to the credit agencies. Many banks don’t even report non-SBA commercial credit, and regulators aren’t even making them do it. So a lot of community banks don’t have a system in place to report commercial loans, SBA or otherwise. And a lot of lenders don’t even know that the SBA rules say they should. In case you’re keeping track, consumer credit, by contrast, is both required and routinely reported.
Here’s an intriguing question: what happens if your lender doesn’t actually report your SBA loan? If the SBA audits the lender and “finds” that the loan wasn’t reported, they’ll log that as a “finding” - an infraction. But in practice that doesn’t usually put the SBA guarantee at risk. So your loan may or may not have been reported to anyone at all.
Here’s how your credit profiles look before and after a default. Before default: If the lender reports, your on-time payment history gets added to the business file. Under SBA rules, it does not show up on your personal credit report. After default: Servicing, liquidation, or charge-off gets reported to the commercial bureaus, and your other business creditors can see it. On the personal side, again, SBA rules don’t require it. But you did sign the guarantee, and reporting is all over the map, so you should check your reports anyway.
Business Credit Reports
Don’t assume. That’s the first thing. Go pull your business credit reports right now from D&B, Equifax and Experian so you know exactly what your lender reported and when. Check your personal report as well.
If your business is already in the hole, here’s the drill: address your debts before they get sent to charge-off. Why? Because whatever lands on your report is going to follow your business into future transactions, and any new lender will spot it when you come looking for credit again. Find someone who negotiates business debt for a living and make a call before the situation snowballs. Don’t procrastinate.
