SBA Lender Liability Mitigation & Defense

Lender liability refers to claims brought against a lender based on the lender’s conduct in connection with a loan or its relationship with a borrower or guarantor. These claims can arise from allegations such as breach of contract, failure to honor loan terms, improper servicing or collection practices, or overstepping the lender’s role. In SBA lending, lender liability issues often surface when a lender takes action to collect, foreclose, enforce a guaranty, or otherwise address a troubled loan.

Lender liability creates a unique exposure because the SBA guaranty protects against certain losses on the guaranteed portion of an SBA loan, but it does not protect the lender from its own liability to a borrower or guarantor. A lender may therefore be responsible for the costs of defending and resolving a lender liability claim without sharing those costs with the SBA. At the same time, the conduct underlying a claim could create separate concerns regarding compliance with SBA Loan Program Requirements and potentially place the SBA guaranty at risk.

The best lender liability defense begins before a claim is ever made. Our firm provides SBA lenders with practical training and ongoing legal guidance designed to help lending teams recognize and avoid practices that could give rise to lender liability claims. We help lenders establish sound practices for documenting decisions, servicing and liquidating loans, communicating with borrowers and guarantors, and navigating challenging loan situations. When a claim does arise, we work with lenders to evaluate the allegations, develop a defense strategy, and protect the lender’s interests while remaining mindful of the SBA guaranty and applicable SBA requirements.