Will the SBA Accept My Offer in Compromise?
Explore the factors influencing SBA's decision on your Offer in Compromise. Learn how to improve your chances of acceptance and manage your defaulted loan effectively.
Learn to navigate the complex legal and financial challenges of selling your business after an SBA loan default. Expert tips to manage risks and secure favorable outcomes.
Have you ever wondered what steps to take after defaulting on a Small Business Administration (SBA) loan, especially when considering selling your business assets? This is a common concern for many business owners. While the answer might seem straightforward, navigating the legal and financial complexities requires careful planning and expert guidance.
A security interest is a legal right granted to the lender over your business property, typically used as collateral. This agreement ensures the lender can seize the collateral if you default on the loan, minimizing their financial risk.
When closing an SBA loan, lenders often file a UCC-1 financing statement, placing a blanket lien on your business assets. This document publicly declares the lender's right to seize and sell assets to recover the debt. Before selling any pledged assets, you must repay the loan or obtain explicit permission from the lender.
Before proceeding, consult with your attorney. They may recommend drafting a non-binding Letter of Intent (LOI) to present to your lender. This document outlines your intentions and allows the lender to evaluate the offer before approving the sale.
Never sign a sales contract without your attorney's review. Most sales require a "condition precedent," which is written consent from the lender approving the sale terms, including prices and asset lists. This ensures all parties are aligned and avoids future disputes.
If your offer is rejected, consult your attorney to reassess your options. Without lender approval, the lien remains, preventing you from providing a clear title to the buyer.
Buyers often require assurances that assets are free of liens. Achieving this depends on successful negotiations with the lender, emphasizing the importance of a strategic approach.
Selling assets without lender approval can lead to lawsuits or even criminal charges. Always act in compliance with legal requirements to avoid severe repercussions.
Engage experienced legal professionals to review offers and guide you through the process. Their expertise ensures compliance with regulations and protects your interests.
Maintain open communication with your lender. Transparency about your financial situation and intentions demonstrates responsibility and fosters cooperation.
Work with your attorney to draft a consent agreement that satisfies both your needs and the lender's interests, facilitating a smooth sale process.
Review your loan documents with your attorney to understand all constraints and obligations. This ensures you are fully prepared for negotiations.
Disputes may arise despite careful planning. Maintain detailed records and prepare for potential challenges to save time and resources.
Protect Law Group specializes in assisting individuals and businesses facing SBA loan challenges. Their experienced attorneys provide tailored solutions to navigate legal and financial complexities. By prioritizing informed decision-making and seeking expert guidance, you can streamline the process, mitigate risks, and achieve favorable outcomes. Contact Protect Law Group at (833) 428-0937 for a case evaluation and personalized support.
Facing the challenges of selling your business after an SBA loan default can feel overwhelming, but you don’t have to navigate this journey alone. Protect Law Group specializes in providing tailored legal and financial solutions to individuals dealing with SBA loan issues. With a team of experienced SBA attorneys and Federal Agency Practitioners, we are here to help you understand your options, negotiate with lenders, and ensure compliance with all legal requirements. Contact us today at (833) 428-0937 for a case evaluation and take the first step toward resolving your SBA loan challenges with confidence.
A security interest is a legal right granted by the borrower to the lender, allowing the lender to claim the borrower's business property as collateral. This ensures the lender has a way to recover their investment if the borrower defaults on the loan. The lender can seize and sell the collateral to minimize their risk.
When closing an SBA loan, lenders typically place a blanket lien on your business assets. This lien is made effective through a UCC-1 financing statement, which publicly declares the lender's right to seize and sell the assets if you default. To sell any pledged assets, you must either repay the loan or obtain explicit permission from the lender.
If you have a buyer, consult your attorney first. Your attorney may recommend drafting a non-binding Letter of Intent (LOI) to present to the lender. This document outlines your intentions and helps the lender evaluate the offer. Do not sign any sales contract without your attorney's review and the lender's written consent, as this ensures all parties are aligned and avoids future disputes.
If the lender rejects your offer, consult your attorney to reassess your options. Without lender approval, the lien on your assets remains, preventing you from transferring a clear title to the buyer. Negotiating with the lender is essential to meet their requirements and satisfy the buyer's expectations for lien-free assets.
Selling assets without lender approval can lead to severe consequences, including lawsuits from the buyer, lender, or SBA. In some cases, unauthorized sales may be considered fraudulent or deceptive, potentially resulting in criminal charges. Always ensure compliance with legal and financial obligations before proceeding with a sale.
Maintain open and transparent communication with your lender. Clearly explain your financial situation and the reasons for selling the assets. Work with your legal advisor to negotiate a consent agreement that satisfies the lender's interests while enabling you to move forward with the sale. Building a collaborative relationship with the lender is key to navigating this process successfully.
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.
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.
Client personally guaranteed SBA 7(a) loan balance of over $150,000. Business failed and eventually shut down. SBA then pursued client for the balance. We intervened and was able to present an SBA OIC that was accepted for $30,000.