Understanding SBA Loan Waivers – What Rights Do You Give Up?

When small business owners apply for financing backed by the Small Business Administration (SBA), lenders require personal guarantees to secure the debt. The SBA’s standard form requires signing a “unconditional” guarantee statement that can seem concerning. What exactly constitutes waiver of rights by signing this? Let’s break down what borrowers are agreeing to.

What Is a Waiver?

In legal terms, a waiver refers to voluntarily giving up certain rights and protections you would otherwise have. It essentially says you acknowledge and accept particular risks, responsibilities or concessions.

Lenders require waivers in financing agreements to establish recourse if the borrower defaults or otherwise fails to meet obligations. You provide written consent to take on heightened exposure.

The SBA Unconditional Guarantee Language

The key section in the SBA unconditional guarantee reads:

“Guarantor waives any notice of this loan, its disbursement, any renewals, extensions, accruing interest, maturity, default, and all other notices to which Guarantor might otherwise be entitled.”

This briefly states you give up rights to be informed about various material events and conditions related to the loan. Let’s unpack what specific rights borrowers waive by agreeing to this statement.

Rights and Notices Waived

• Receiving notice of the loan’s funding or disbursement
• Being notified if the loan terms get renewed or extended
• Updates regarding accruing interest on the balance
• Notification when the loan matures or expires
• Notice if the borrower defaults on the loan
• Other standard notices lenders are otherwise required to provide

Essentially, you forfeit the right to be kept abreast of material changes to the loan and its status. This gives the lender maximum latitude to administer the debt without informing you.

Why Lenders Require Such Waivers

Lenders insist on unconditional guarantees like the SBA’s because they eliminate administrative burdens and risks associated with keeping borrowers notified on an ongoing basis.

Specific benefits to lenders include:

• Avoiding costs of sending regular update notices.
• Mitigating risks borrowers could claim lack of notification as a defense upon default.
• Ability to renew/modify terms or declare default without consent.
• Maximizing likelihood recourse against guarantors will stand up in court.
• Generally strengthening their legal position if the loan sours.

While seemingly harsh, lenders argue waivers reduce costs passed onto borrowers and minimize losses across their lending portfolio.

Impact of Waiving Rights as a Borrower

However, unconditional guarantees do leave borrowers exposed in key ways:

• You lose visibility into the status and terms of the debt over time.
• Interest can accrue and terms can change without your knowledge.
• You could be declared in default without advance notice.
• Your waiver weakens defenses should legal disputes arise later.
• Requires close monitoring of the debt independently without notifications.

So you essentially trade away protective rights for the convenience and reduced risks of the lender. This represents meaningful additional exposure.

Do Borrowers Have Any Recourse?

While unconditional guarantees are standard, borrowers aren’t 100% powerless:

• The lender still must adhere to overarching laws and good faith, even if notifications are waived.
• Clear violations of norms can be used to challenge lack of notice despite waivers.
• Proving actual damages from lack of notice can support demands for remedy.
• Unscrupulous use of waivers to conceal misconduct remains unlawful.
• Consumer protection laws may impose basic notice requirements regardless.

So just because notifications are waived doesn’t give lenders carte blanche to do anything without regard for consequences.

Weighing Whether to Sign the Waiver

When presented with unconditional guarantees requiring waivers, as the borrower you can:

• Decline to sign and risk not getting approved for the loan.
• Sign knowing the risks you assume responsibility for.
• Attempt to negotiate limitations or carve-outs from the waivers.

There are arguments on both sides regarding if accepting waivers is prudent or not:

Reasons to Accept Waivers

• Necessary to access the loan funds you want
• Widespread practice across lenders
• May result in lower overall costs to you
• Assuming the lender will act responsibly and lawfully

Reasons to Resist Waivers

• Too much risk exposure for the borrower
• Forfeiting important visibility and control
• Could enable lender misconduct or negligence
• Alternative lenders may offer loans without blanket waivers

There are merits to each perspective when evaluating unconditional guarantee waivers.

Key Takeaways on SBA Loan Waivers

• They forfeit rights to receive notifications on material loan events and changes.
• Lenders favor waivers to reduce risks and costs.
• But borrowers lose visibility into debt status and terms over time.
• Violating laws remains prohibited even with waivers signed.
• Options exist to decline, negotiate, or sign waivers as presented.
• Arguments exist on both sides regarding risks and benefits of accepting waivers.

While waivers inherently carry increased risks, understanding exactly what rights a guarantee forfeits allows borrowers to make informed decisions before signing.

Helpful Resources

• SBA Guarantee Requirements: www.sba.gov/funding-programs/loans
• Legal Waivers in Finance: www.investopedia.com/terms/w/waiver.asp
• Negotiating SBA Loan Terms: www.sba.gov/partners/lenders/7a-loan-program/terms-conditions-eligibility
• Borrower Defenses Against Lenders: www.nolo.com/legal-encyclopedia/defenses-foreclosure-nonjudicial-states.html
• Avoiding Predatory Business Loans: www.legalconsumer.com/predatory-small-business-lending/

Waivers inevitably increase risks, but education empowers borrowers to make informed decisions about their rights.