SBA Loan Default and the SBA Disaster Relief Loan
We will analyze your SBA loan problems and advise you on potential solutions such as an SBA offer in compromise.
Whether you have defaulted on an SBA loan or have moved on from your business partners options exist for eliminating your debt.
Book a Consultation CallIf your business obtained an SBA loan, you more than likely signed a personal guarantee. This personal guarantee states that although the business was the borrower for the loan, you remain personally liable if the business defaults on the SBA loan.
If you were a partner in a business and left the business, were bought out of the business or gave the business to your spouse as part of a divorce the personal guarantee means you remain liable for the debt even thought you have nothing to do with the business.
In either case, you need a strategy to resolve your personal liability on the SBA debt.
If the business defaulted on the SBA loan and the SBA seeks satisfaction from you personally, an offer in compromise exists as a solution. An offer in compromise means that you offer to settle the debt from something less than the deficiency.
The amount of the compromise will depend on many factors such as your assets and liabilities; your income and expenses; the amount the government could collect from you through enforced collection; and "litigative risks" the government faces if it did attempt to enforce collection. Every situation and fact pattern is unique. The range for an offer in compromise can be as little as 2 cents on the dollar and as high as 90 cents on the dollar.
An alternative to the offer in compromise is the repayment plan. If your income is too high relative to the debt, for instance, the SBA may reject an offer in compromise. A repayment plan allows you to repay the debt in full over time.
The benefits of a repayment plan include: 1. Preserving liquidity; 2. Preserving the opportunity to obtain government backed loans in the future such as FHA, VA or SBA loans; and 3. May affect your credit score less.
If, however, the business remains operational but you are no longer involved in the business due to buyout, divorce, etc., you will want the SBA to release you from your guarantee. This is easier said than done.
The SBA will naturally want something in return to let you out of your personal guarantee. Moreover, the release must not: jeopardize the ability to maximize recovery on the loan; shift the risk of loss to SBA; or otherwise harm the integrity of the SBA loan program. This means that a release will require that the SBA remain in as good or better position after the release than before the release. Without some type of consideration for the release such as the substitution of another guarantor, it is unlikely that the SBA will approve the request.
Protect Law Group successfully handles SBA loan matters for clients all over the nation. Our attorneys are experienced in dealing with the SBA and have the knowledge to successfully resolve your SBA loan problem.
Contact us today at 833-428-0937 to set up your consultation or contact us at www. sba-attorneys.com
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 borrowed and personally guaranteed an SBA 7(a) loan. Clients defaulted on the SBA loan and were sued in federal district court for breach of contract. The SBA lender demanded the Client pledge several personal real estate properties as collateral to reinstate and secure the defaulted SBA loan. We were subsequently hired to intervene and aggressively defend the lawsuit. After several months of litigation, our attorneys negotiated a reinstatement of the SBA loan and a structured workout that did not involve any liens against the Client's personal real estate holdings.
Client personally guaranteed an SBA 7(a) loan for $100,000 from the lender. The SBA loan went into early default in 2006 less than 12 months from disbursement. The SBA paid the 7(a) guaranty monies to the lender and subsequently acquired the deficiency balance of about $96,000, including the right to collect against the guarantor. However, the SBA sent the Official 60-Day Due Process Notice to the Client's defunct business address instead of his personal residence, which he never received. As a result, the debt was transferred to Treasury's Bureau of Fiscal Service where substantial collection fees were assessed, including accrued interest per the promissory note. Treasury eventually referred the debt to a Private Collection Agency (PCA) - Pioneer Credit Recovery, Inc. Pioneer sent a demand letter claiming a debt balance of almost $310,000 - a shocking 223% increase from the original loan amount assigned to the SBA. Client's social security disability benefits were seized through the Treasury Offset Program (TOP). Client hired the Firm to represent him as the debt continued to snowball despite seizure of his social security benefits and federal tax refunds as the involuntary payments were first applied to Treasury's collection fees, then to accrued interest with minimal allocation to the SBA principal balance.
We initially submitted a Cross-Servicing Dispute (CSD) challenging the referral of the debt to Treasury based on the defective notice sent to the defunct business address. Despite overwhelming evidence proving a violation of the Client's Due Process rights, the SBA still rejected the CSD. As a result, an Appeals Petition was filed with the SBA Office of Hearings & Appeals (OHA) Court challenging the SBA decision and its certification the debt was legally enforceable in the amount claimed. After several months of litigation before the SBA OHA Court, our Firm Attorney successfully negotiated an Offer in Compromise (OIC) Term Workout with the SBA Supervising Trial Attorney for $82,000 spread over a term of 74 months at a significantly reduced interest rate saving the Client an estimated $241,000 in Treasury collection fees, accrued interest (contract interest rate and Current Value of Funds Rate (CVFR)), and the PCA contingency fee.
Clients obtained an SBA 7(a) loan for their small business in the amount of $298,000. They pledged their primary residence and personal guarantees as direct collateral for the loan. The business failed, the lender was paid the 7(a) guaranty money and the debt was assigned to the SBA. Clients received the Official 60-Day Notice giving them a couple of options to resolve the debt balance directly with the SBA before referral to Treasury's Bureau of Fiscal Service. The risk of referral to Treasury would add nearly $95,000 to the SBA principal loan balance. With the default interest rate at 7.5%, the amount of money to pay toward interest was projected at $198,600. Clients hired the Firm with only 4 days left to respond to the 60-Day due process notice. Because the clients were not eligible for an Offer in Compromise (OIC) due to the significant equity in their home and the SBA lien encumbering it, the Firm Attorneys proposed a Structured Workout to resolve the SBA debt. After back and forth negotiations, the SBA Loan Specialist assigned to the case approved the Workout terms which prevented potential foreclosure of their home, but also saved the clients approximately $294,000 over the agreed-upon Workout term with a waiver of all contractual and statutory administrative fees, collection costs, penalties, and interest.
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