Can I Apply the Proceeds from the Sale of my Business to my Offer in Compromise?

Can I Apply the Proceeds from the Sale of My Business to My Offer in Compromise?

Have you ever wondered, "Can I apply the proceeds from the sale of my business to my Offer in Compromise?" This is a common question, especially for those who have invested significant savings into a business that is now struggling or closing. Losing a business is challenging, and it becomes even more difficult when faced with repaying a Small Business Administration (SBA) loan with limited resources.

Understanding the Sale and Liquidation of Your Business

When your business can no longer sustain itself, you typically have two options: work with your lender to sell the business or liquidate its assets. This process can be complex, but understanding the steps involved can help you navigate it more effectively.

Working with Lenders

Most business owners collaborate with their lenders to manage the sale of their business. This could involve selling the entire business to a third party or liquidating assets. While lenders may repossess collateral or appoint a receiver in rare cases, business owners are usually in the best position to oversee the sales process to maximize recovery.

Managing the sale yourself can help you avoid significant fees. For example, brokerage fees can range from 6-12% or more, and auctioneers may charge 25-35% to auction assets. If the bank repossesses and auctions your assets, these costs may be added to your loan balance. In cases like franchises, additional considerations, such as franchisor interests and lease transfers, may arise.

Legal and Financial Guidance

Before selling your business assets, consult with your lender and an attorney. They can guide you on the best course of action and help you understand the implications for your loan balance.

Questions Surrounding Business Sale Proceeds

When applying the proceeds from the sale of your business, several questions often arise. Addressing these can provide clarity and help you prepare for the process.

Will Sale Proceeds Impact My Loan Balance?

Yes, the proceeds from selling your business or its assets will reduce your loan balance. However, if the proceeds do not cover the full loan amount, you will be responsible for the remaining balance, known as a deficiency. As a guarantor, you must arrange to pay off this deficiency.

Implications for Your Offer in Compromise

There is often confusion about whether sale proceeds affect your Offer in Compromise. While the sale reduces your loan balance, it does not directly reduce your compromised balance. Your offer reflects the remaining balance, not reduced by the sale proceeds, meaning you must address your personal liability separately.

Making the Offer in Compromise

When dealing with a loan deficiency, you must propose a settlement to the lender. This offer typically involves funds from personal resources or borrowing, not from the business sale proceeds. Here’s an example:

ScenarioAmount Original loan balance $100,000 Proceeds from sale of assets $30,000 Deficiency (remaining balance) $70,000 Credit against the offer as guarantor $0

Even if the sale generates significant proceeds, you will still need to propose a resolution for the remaining liability.

Preparing Your Offer in Compromise

When preparing your Offer in Compromise, it is essential to have a clear plan and seek legal advice. This ensures you understand how the proceeds will be applied and helps you manage your financial obligations effectively.

Importance of Legal Consultation

Consulting an attorney before discussing your offer with the lender is invaluable. They can provide insights into how the proceeds will be applied and guide you through the legal complexities of compromise offers. This step is especially important if you are unprepared for the responsibility of reducing your loan balance.

Crafting a Realistic Financial Plan

Developing a feasible financial plan is critical for addressing any remaining loan deficiencies. Your plan should account for personal resources and borrowing strategies to create a practical and acceptable offer. This preparation not only safeguards your financial stability but also reduces stress during negotiations with your lender.

In conclusion, while applying the proceeds from the sale of your business may seem straightforward, the process can be complex. By understanding the steps involved and seeking professional guidance, you can address your financial obligations with confidence. Protect Law Group specializes in assisting individuals with SBA loan issues, offering tailored solutions to help you navigate these challenges effectively.