Factors That Can Affect the Success of an SBA Offer in Compromise Application
Factors That Can Affect the Success of an SBA Offer in Compromise Application
We Provide Nationwide Representation of Small Business Owners, Personal Guarantors, and Federal Debtors with More Than $30,000 in Debt before the SBA and Treasury Department's Bureau of Fiscal Service
No Affiliation or Endorsement by any Federal Agency
Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure
Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements
Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.
Our firm successfully resolved an SBA 7(a) loan default in the amount of $212,000 on behalf of an individual guarantor. The borrower’s business experienced a significant downturn in revenue and was unable to sustain operations, ultimately leading to closure and a remaining personal guaranty obligation.
After conducting a thorough financial review and preparing a comprehensive SBA Offer in Compromise (SBA OIC) submission, we negotiated directly with the SBA and lender to achieve a settlement of $50,000—approximately 24% of the outstanding balance. This favorable resolution released the guarantor from further personal liability and provided the opportunity to move forward free from the burden of enforced collection.
Our firm successfully resolved an SBA 7a loan in the original amount of $364,000 for a New Jersey-based borrower. The client filed Chapter 7 bankruptcy but the mortgage on his real estate securing the loan remained in place. The available equity amounted to $263,470 and the deficiency equaled $317,886.
We gathered the pertinent documentation and prepared a comprehensive collateral analysis. We negotiated directly with the SBA, obtaining a full release of the mortgage for $80,000.
Client's small business obtained an SBA COVID EIDL for $301,000 pledging collateral by executing the Note, Unconditional Guarantee and Security Agreement. The business defaulted on the loan and the SBA CESC called the Note and Guarantee, accelerated the principal balance due, accrued interest and retracted the 30-year term schedule.
The loan was transferred to the Treasury's Bureau of Fiscal Service which resulted in the statutory addition of $90,000+ in administrative fees, costs, penalties and interest with the total debt now at $391.000+. Treasury also initiated a Treasury Offset Program (TOP) levy against the client's federal contractor payments for the full amount each month - intercepting all of its revenue and pushing the business to the brink of bankruptcy.
The Firm was hired to investigate and find an alternate solution to the bankruptcy option. After submitting formal production requests for all government records, it was discovered that the SBA failed to send the required Official 60-Day Pre-Referral Notice to the borrower and guarantor prior to referring the debt to Treasury. This procedural due process violation served as the basis to submit a Cross-Servicing Dispute to recall the debt from Treasury back to the SBA and to negotiate a reinstatement of the original 30-year maturity date, a modified workout, cessation of the TOP levy against the federal contractor payments and removal of the $90,000+ Treasury-based collection fees, interest and penalties.
To determine if an SBA OIC is possible the following information must be provided;• A completed and signed SBA Form 1150 Offer in Compromise which outlines the terms of the offer and why the offer is being made. Be sure to address all the items on the forms “Instructions for Presenting the Offer” and “Elements of a Workable Compromise Offer.” You should also discuss the settlement arrangements that are being made with other creditors.• All offeror(s) must complete and sign an SBA Form 770 Financial Statement of Debtor and provide copies of the most recent two years of personal IRS Tax returns (or a copy of the Extension if not filed). The SBA Form 770 will be reviewed and compared with the original SBA Form 413 “Personal Financial Statement” completed at the time of loan approval. Valuations of property subject to judgment must be supported.• Copy of a current paystub if you are employed.• Additional information may be necessary depending on the individual circumstances of the transaction.
The SBA can compromise a debt (that is, it can accept less than the full amount owed on a debt) based on the authority contained in the following statutes and regulatory sources:a. Section 5(b) of the Small Business Act which gives the Administrator authority to effect compromise settlements.b. The Federal Claims Collection Act (31 U.S.C. 3701 and following) which provides a means for the settlement, adjustment, and compromise of claims by Federal agencies.c. 4 CFR § 183, which prescribes standards for the compromise of claims under the Federal Claims Collection Act.
A charge off is justified when the SBA has complied with all requirements of collection and liquidation and further collection of any substantial portion of the debt is doubtful. The determination to justify a charge off may be based on one or more of the following:a) All efforts must have been exhausted in cost-effective recovery from:1. Voluntary payments from the borrower;2. Liquidation of collateral;3. Compromise with obligor leaving only a deficiency balance; and4. Consideration has been given to any legal remedies available so that no further reasonable expectation of recovery remains.b) Estimated costs of future collection exceed any anticipated recovery;c) Obligor cannot be located or is judgment proof;d) The Lender/SBA’s rights have expired (e.g., statute of limitations, restrictions of State law, SBA policy);e) Debt is legally without merit;f) Adjudication of a Chapter 7 Bankruptcy as a no asset case, or completion of Chap 11/13 case;g) The inability of the Lender to effect further worthwhile recovery.
If your SBA loan is in default and you are working with your lender to wind down the business and settle the deficiency with an offer in compromise, time is of the essence. Banks generally do not wait much longer than 60-90 days after the defaulted borrower (business) has been liquidated or shut down to tender an OIC to the SBA for consideration which, if accepted, could potentially release the guarantors from the deficiency for a lesser amount. Generally speaking, the bank or CDC will send you what is commonly known as a Notice of Default, Acceleration and Demand for Payment for the entire loan balance due. If litigation is not a fiscally viable option and after certain collateral liquidation, you may be offered the chance to submit an SBA OIC with the bank or CDC for SBA consideration. If your case is ultimately transferred to the SBA, you should receive a 60-day Official Notice and demand for payment. If you fail to timely submit an SBA OIC within the administrative time frame as noted in this letter, the SBA will then refer your debt to the U.S. Department of Treasury for enforced collection, and thus, you will probably lose your one (1) time shot to settle for less than what is purportedly owed on the SBA debt through the SBA Offer in Compromise process..It should be noted that Treasury rarely collects on these bad loans directly – rather they hire private collection agencies (PCAs) to handle this. These PCAs don’t know anything about the history behind the loan – their job is to be ruthless in their collection endeavors as they generally receive a generous percent of the collected amount or actually bought the so-called junk federal debt for pennies on the dollar. Several of these federally approved private collection agencies or junk debt buyers are particularly nasty, and rarely settle for less than 50% of the outstanding amount as the incentives for collection, litigation and judgment pursuit are very high. Contrast that with the results that we have reviewed and settled and it’s easy to see the importance of addressing your outstanding SBA debt sooner rather than later, whether you’re working with a non-attorney consultant, an SBA Attorney or Federal Agency Practitioner, or attempting to do it yourself. If you think your banker is nasty or difficult to work with, you don’t want to experience the tactics of these collection agencies or junk debt buyers.
Charge off is the process by which the SBA recognizes a loss and removes the uncollectible loan account from its active receivable accounts. The SBA’s policy is to be diligent and thorough in collection of federal debt and to promptly charge off all uncollectible accounts to more accurately reflect the status of the individual account and the Agency’s entire portfolio. It should be noted that a charge off is merely an administrative determination that does NOT affect SBA’s rights against any obligor nor reduce the SBA’s (or a participant lender’s) ability to proceed with any available remedy.
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