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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Client personally guaranteed SBA 7(a) loan for $150,000. COVID-19 caused the business to fail, and the loan went into default with a balance of $133,000. Client initially hired a non-attorney consultant to negotiate an OIC. The SBA summarily rejected the ineligible OIC and the debt was referred to Treasury’s ureau of Fiscal Service for enforced collection in the debt amount of $195,000. We were hired to intervene and initiated discovery for SBA and Fiscal Service records. We were able to recall the case from Fiscal Service back to the SBA. We then negotiated a structured workout with favorable terms that saves the client approximately $198,000 over the agreed-upon workout term by waiving contractual and statutory administrative fees, collection costs, penalties, and interest.
The client personally guaranteed an SBA 504 loan balance of $375,000. Debt had been cross-referred to the Treasury at the time we got involved with the case. We successfully had debt recalled to the SBA where we then presented an SBA OIC that was accepted for $58,000.
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.
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