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

Explore how to use business sale proceeds for an Offer in Compromise, navigate loan deficiencies, and seek legal guidance to manage your financial obligations effectively.

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:

Scenario Amount
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.

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

Are you navigating the complexities of selling your business while managing an SBA loan? Protect Law Group is here to help. Our experienced SBA attorneys specialize in guiding business owners through the legal and financial intricacies of applying sale proceeds to an Offer in Compromise. Whether you're dealing with loan deficiencies or exploring settlement options, our team provides tailored solutions to help you achieve financial resolution. Contact us today at (833) 428-0937 for a case evaluation and take the first step toward clarity and peace of mind.

Frequently Asked Questions

Can I apply the proceeds from the sale of my business to my Offer in Compromise?

No, the proceeds from the sale of your business do not directly reduce your Offer in Compromise. While the sale proceeds decrease your loan balance, your Offer in Compromise reflects the remaining balance after the sale, which you must settle separately using personal resources or other means.

Will the proceeds from selling my business reduce 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 still be responsible for the remaining balance, known as a deficiency, which guarantors are expected to pay.

What happens if the sale proceeds do not cover the full loan amount?

If the sale proceeds do not cover the full loan amount, you will be responsible for the remaining balance, referred to as a deficiency. This deficiency must be addressed separately, often through an Offer in Compromise or other financial arrangements.

Do I need legal consultation before selling my business or making an Offer in Compromise?

Yes, consulting an attorney is highly recommended before selling your business or making an Offer in Compromise. Legal guidance can help you understand how the sale proceeds will be applied and assist in crafting a realistic plan to manage your financial obligations effectively.

What is an Offer in Compromise, and how does it work?

An Offer in Compromise is a settlement proposal made to your lender to resolve the remaining loan balance after the sale of your business. It typically involves offering funds from personal resources or borrowing, as business sale proceeds cannot be used directly for the offer.

Why is it important to have a financial plan when preparing an Offer in Compromise?

Having a financial plan is crucial to ensure you can address the loan deficiency after selling your business. A well-prepared plan accounts for personal resources and borrowing strategies, helping you create a practical and acceptable offer while reducing financial stress during negotiations with your lender.

$488,000 SBA 7A LOAN - SBA OHA LITIGATION

$488,000 SBA 7A LOAN - SBA OHA LITIGATION

The clients are personally guaranteed an SBA 7(a) loan.  The SBA referred the debt to the Department of Treasury, which was seeking payment of $487,981 from our clients.  We initially filed a Cross-Servicing Dispute, which was denied.  As a result, we filed an Appeals Petition with the SBA Office of Hearings and Appeals asserting legal defenses and supporting evidence uncovered during the discovery and investigation phase of our services.  Ultimately, the SBA settled the debt for $25,000 - saving our clients approximately $462,981.

$150,000 SBA 7A LOAN - NEGOTIATED WORKOUT AGREEMENT

$150,000 SBA 7A LOAN - NEGOTIATED WORKOUT AGREEMENT

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.

$310,000 SBA 7A LOAN - SBA OIC TERM WORKOUT

$310,000 SBA 7A LOAN - SBA OIC TERM WORKOUT

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.

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