While the U.S. transitions from summer to fall in the wake of the Presidential Election on November 3, 2020 against the backdrop of surging COVID-19 cases, it is very possible that a good chunk of small businesses will eventually close their doors despite having received federal stimulus help through SBA PPP loans or SBA EIDL loans.
When confronted with the prospect of having to shut down their small business, what can small business owners expect if the federal government comes knocking for repayment of any PPP loan funds that have not been forgiven in accordance with the SBA CARES Act?
According to public statistics, 172,786 jobs were saved as a direct result of the SBA PPP loan program. However, some small businesses still had to close their doors permanently.
According to public sources, approximately 140,000 small businesses remain closed due to the COVID-19 pandemic and 41% have shuttered permanently.
Public resources state that among those with the highest rate of permanent closures are shopping and retail (9,682 businesses), restaurants (12,709 businesses), beauty (3,683 businesses) and fitness (1,453 businesses).
As a result of the alarming number of permanent closures, many folks are wondering what happens when a small business PPP recipient closes permanently.
Despite the need for more guidance from the federal government, we know that if SBA PPP Loan recipients spent all of the money within eight weeks (or twenty-four weeks for those who received an extension after the PPP Flexibility Act was adopted) and they used at least 60% on payroll, then arguably their SBA PPP loan should be completely forgiven.
However, if small business recipients have unused SBA PPP Loan fund which they cannot pay off, they may need to consider the following options: (1) Submit a formal offer in compromise of the outstanding SBA PPP Loan or (2) File for federal bankruptcy protection.
According to Sharon King, the Boulder Small Business Development Center executive director, "Most or all of the loan is likely to be discharged as part of the process as long as the borrower has acted in good faith." However, it is still unclear on what would happen in this situation.
If the small business misused its SBA PPP Loan funds and then closed permanently, the SBA and Treasury have indicated their intent to follow the money by launching investigation measures and pursuing small businesses and the respective owners through various administrative and litigation tactics.
The SBA intends to provide additional guidance on PPP loan forgiveness. Once more guidance is issued, the industry should have a better idea of how the SBA PPP loans to permanently closed businesses will be managed.
Protect Law Group has proven, nationwide experience resolving SBA loan or debt cases.
Owe more than $30,000? Contact Protect Law Group for a Case Evaluation or call us toll-free at 1-888-756-9969.
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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.
Clients personally guaranteed an SBA 504 loan balance of $337,000. The Third Party Lender had obtained a Judgment against the clients. We represented clients before the SBA and negotiated an SBA OIC that was accepted for $30,000.
The client personally guaranteed an SBA 7(a) loan for $150,000. His business revenue decreased significantly causing default and an accelerated balance of $143,000. The client received the SBA's Official 60-day notice with the debt scheduled for referral to the Treasury’s Bureau of Fiscal Service for aggressive collection in less than 26 days. We were hired to represent him, respond to the SBA's Official 60-day notice, and prevent enforced collection by the Treasury and the Department of Justice. We successfully negotiated a structured workout with an extended maturity date that included a reduction of the 14% interest rate and removal of substantial collection fees (30% of the loan balance), effectively saving the client over $242,000.
Clients' 7(a) loan was referred to Treasury's Bureau of Fiscal Service for enforced collection in 2015. They not only personally guaranteed the loan, but also pledged their primary residence as additional collateral. One of the clients filed for Chapter 7 bankruptcy thinking that it would discharge the SBA 7(a) lien encumbering their home. They later discovered that they were mistakenly advised. The Firm was subsequently hired to review their case and defend against a series of collection actions. Eventually, we were able to negotiate a structured workout for $180,000 directly with the SBA, saving them approximately $250,000 (by reducing the default interest rate and removing Treasury's substantial collection fees) and from possible foreclosure.
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