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How To Take Advantage Of CARES Act Provisions For SBA Loan Defaults

Discover how to mitigate SBA loan defaults using CARES Act provisions. Learn about deferral, forgiveness options, and legal strategies for financial resilience.

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Have you ever found yourself grappling with the complexities of an SBA loan while concerns about defaults keep you awake at night? Navigating the labyrinth of legal and financial intricacies around Small Business Administration (SBA) loans can be daunting, especially in the face of potential defaults. Given the profound impact that such defaults may have on your business and personal financial stability, it’s crucial to be well-informed about the available avenues for resolution and the protective measures in place under specific legislative provisions such as the CARES Act.

Understanding the CARES Act Provisions for SBA Loan Defaults

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed in response to the COVID-19 pandemic, includes several provisions aimed at aiding small businesses overwhelmed by financial challenges. Though primarily designed to provide relief in uncertain times, certain CARES Act provisions can directly benefit businesses facing difficulties with SBA Loan Defaults.

Key CARES Act Provisions for SBA Loan Borrowers

Under the CARES Act, mechanisms were introduced that might ease the pressures associated with loan repayment and provide opportunities for restructuring your financial obligations. These include deferments and forgiveness programs, crucial if you are facing operational challenges or significant reductions in revenue.

  1. Payment Deferral Options The Act allowed for automatic payment deferrals on many SBA loans, effectively providing breathing room for borrowers to stabilize their financial situations without the burden of ongoing monthly payments.
  2. Loan Forgiveness Programs For eligible Paycheck Protection Program (PPP) loans, the Act facilitated avenues for loan forgiveness. While not all SBA loans are eligible, understanding whether your loan qualifies for partial or complete forgiveness can substantially reduce your financial liabilities.

How CARES Act Provisions Can Influence SBA Loan Resolutions

By leveraging these provisions, borrowers have the opportunity to renegotiate the terms of their loans or even resolve certain debts for less than what is owed. Taking advantage of such modifications requires a thorough understanding of your eligibility and the application processes involved.

Legal Support and Navigational Strategies

Understanding your legal rights and options can mean the difference between overcoming financial obstacles and succumbing to them. At this juncture, consulting with legal experts familiar with both SBA regulations and CARES Act provisions becomes essential.

Role of Protect Law Group in SBA Loan Issues

Protect Law Group focuses specifically on representing business owners in SBA and treasury debt challenges, offering robust support mechanisms to manage and resolve financial distress related to SBA loan defaults. Their legal expertise is critical in:

  1. Strategic Defense Planning By devising strategies tailored to your specific circumstances, Protect Law Group can help in defending against aggressive collection efforts, ensuring compliance with legal standards while minimizing financial exposure.
  2. Appeal Petitions and Legal Challenges If you’ve received an unfavorable decision from the SBA, Protect Law Group assists in the preparation and submission of appeals. They ensure the factual and procedural integrity of your case is maintained throughout the adjudication process.

Implementing Pragmatic Financial Solutions

A strategic approach to handling SBA loan defaults under the CARES Act may involve settlement negotiations or structured repayment plans. With this in mind, Protect Law Group extends various services designed to facilitate these objectives.

Utilizing SBA Offer in Compromise

For those unable to meet their SBA obligations, an Offer in Compromise presents a viable route to negotiate debt reduction. This allows eligible businesses to settle their loans for a fraction of the owed amount, provided they can substantiate their inability to pay the full sum.

  1. Eligibility and Application Deliberating on whether to file an Offer in Compromise? You must demonstrate that paying the full amount would result in undue hardship. Protect Law Group aids in compiling necessary documentation and formulating a convincing case.

Structured Workout Plans

A structured workout plan acts as a second lifeline, altering the repayment framework to better align with your current financial capacity.

  1. Negotiation and Implementation Engage in negotiations to extend repayment timelines and reduce immediate financial strain. Protect Law Group negotiators advocate for terms that render the debt sustainable, preventing further defaults and protecting assets.

Navigating Administrative and Cross-Servicing Disputes

When debts are transferred to the Treasury’s Bureau of Fiscal Service, challenges might escalate, necessitating legal intervention.

Addressing and Resolving Disputes

To combat administrative offsets or cross-servicing actions by the Treasury, filing a Petition for Dispute Resolution with competent authorities is imperative. This ensures debt reviews adhere to procedural fair-play, preventing unwarranted asset seizures or income penalties.

Best Practices for Leveraging Legal Services

Selecting the right legal representation can significantly affect the outcome of your debt resolution process. Protect Law Group’s credentials include:

  1. Specialization in SBA Debt Resolution
  2. Lexicon of Legal Authorities
  3. Ethical Standards and Effective Outcomes

Choosing a firm like Protect Law Group means being supported by seasoned negotiators skilled in dealing with SBA intricacies, yielding peace of mind amid the financial turbulence associated with loan defaults.

Concluding Thoughts

The CARES Act stands as a pivotal element in providing relief options for SBA loan defaults. However, capitalizing on its benefits requires astute navigation bolstered by legal expertise. Protect Law Group equips businesses with the necessary legal strategies to manage and potentially dissolve financial liabilities stemming from SBA loans, fostering an environment for rebuilding with minimal setbacks.

By understanding the options before you and actively seeking expert guidance, you can take decisive steps towards regaining financial stability, securing your enterprise’s future, and ensuring that fear of defaults no longer necessitates sleepless nights.

Frequently Asked Questions

$750,000 SBA 7A LOAN – NEGOTIATED WORKOUT AGREEMENT

$750,000 SBA 7A LOAN – NEGOTIATED WORKOUT AGREEMENT

Client’s small business obtained an SBA 7(a) loan for $750,000.  She and her husband signed personal guarantees exposing all of their non-exempt income and assets. With just 18 months left on the maturity date and payment on the remaining balance, the Great Recession of 2008 hit, which ultimately caused the business to fail and default on the loan terms. The 7(a) lender accelerated and sent a demand for full payment of the remaining loan balance.  The SBA lender’s note allowed for a default interest rate of about 7% per year. In response to the lender's aggressive collection action, Client's husband filed for Chapter 7 bankruptcy in an attempt to protect against their personal assets. However, his bankruptcy discharge did not relieve the Client's personal guarantee liability for the SBA debt. The SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection against the Client to the SBA. The Client then received the SBA Official 60-Day Notice. After conducting a Case Evaluation with her, she then hired the Firm to respond and negotiate on her behalf with just 34 days left before the impending referral to Treasury. The Client wanted to dispute the SBA’s alleged debt balance as stated in the 60-Day Notice by claiming the 7(a) lender failed to liquidate business collateral in a commercially reasonable manner - which if done properly - proceeds would have paid back the entire debt balance.  However, due to time constraints, waivers contained in the SBA loan instruments, including the fact the Client was not able to inspect the SBA's records for investigation purposes before the remaining deadline, Client agreed to submit a Structured Workout for the alleged balance in response to the Official 60-Day Notice as she was not eligible for an Offer in Compromise (OIC) because of equity in non-exempt income and assets. After back and forth negotiations, the SBA Loan Specialist approved the Workout proposal, reducing the Client's purported liability by nearly $142,142.27 in accrued interest, and statutory collection fees. Without the Firm's intervention and subsequent approval of the Workout proposal, the Client's debt amount (with accrued interest, Treasury's statutory collection fee and Treasury's interest based on the Current Value of Funds Rate (CVFR) would have been nearly $291,030.

$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.

$364,000 7a LOAN - Release of SBA Mortgage on Real Estate

$364,000 7a LOAN - Release of SBA Mortgage on Real Estate

Our firm successfully resolved an SBA 7a loan in the original amount of $364,000 for a New Jersey-based borrower. The client filed Chapter 7 bankruptcy but the mortgage on his real estate securing the loan remained in place. The available equity amounted to $263,470 and the deficiency equaled $317,886.

We gathered the pertinent documentation and prepared a comprehensive collateral analysis. We negotiated directly with the SBA, obtaining a full release of the mortgage for $80,000.

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