Signs It Is Time for Your Business to Consider SBA Lending
Is your company growing faster than you can financially keep up with? It might be time to consider SBA lending. Check out these signs.
Offer in Compromise is a way for a small business to close when it is clear that they won't be able to pay their debts, but here are 5 factors to consider
Book a Consultation CallAround 20,000 to 25,000 businesses file for bankruptcy annually. But bankruptcy can take a toll on your business and your finances.
If you have an SBA loan that you can't pay, you can apply for an Offer in Compromise to get the financial relief you need.
Keep reading to learn what to consider before you file with the SBA.
Offer in Compromise
When applying for an Offer in Compromise, you can't be in the process of filing for bankruptcy. If you have problems paying for more than your SBA loan payments, bankruptcy can be a good option.
However, an Offer in Compromise is an alternative to filing for bankruptcy. Applying for both isn't necessary, so you should determine which is better for you.
With an Offer of Compromise, you can settle your debt out of court, which can make everything less stressful.
Now, some businesses will benefit from declaring bankruptcy. But it can do a lot of damage to your credit and your ability to get future loans.
Bankruptcy can also have up to $150,000 worth of hidden costs. Unless you need to declare bankruptcy, you should explore alternatives first.
If you want to maintain your financial status, you should consider an Offer in Compromise. Then, you can pay off your debts without sacrificing your entire financial situation.
Even if you don't need to file for bankruptcy, you should consider if you're a defendant in a legal case. If so, that can help you prove your inability to pay your SBA loan.
While keeping cases out of court can lower the cost, you don't always have that control. If the opposing party doesn't want to negotiate a case, you'll have to pay for legal counsel for the trial.
You may face a trial for problems with your product. And if you're a sole proprietor, personal trials can affect your business.
On the one hand, having a trial means you have to spend more money to prove your case. However, you can use that as leverage when applying for an Offer in Compromise.
Whether your case has a factual dispute or another issue, your legal fees may burden your business finances. As long as you can show your small business finances, any major expense can help you get an Offer in Compromise.
You'll still need to pay back some money on your loan. But depending on how much of a burden you have, you can reduce your loan bill.
You also need to put your SBA loan in liquidation status. That can help you qualify for an Offer in Compromise
The SBA has a set of procedures they follow for liquidation loans. You may need to prove that your business has a lot of expenses that you can't afford to pay.
Then, you can get your SBA loan to have liquidation status. You can consult the SBA to determine your loan status and if you can switch it to be in liquidation.
After you obtain that status, you can move forward with your application for an Offer in Compromise.
If you can't pay for your loan, you can use that to liquidate it. That can then help you move further through the process.
You can also work with a lawyer to help make your case. If you can prove you have too much financial liability, you may be able to get the offer without having a loan in liquidation.
You don't have to currently have financial issues to qualify for an Offer in Compromise. But you should be able to prove some financial hardship
If you can show that paying the loan in full will be difficult, you can get an adjustment on your loan. One way to show this is if you're disabled or ill.
You may be able to use other methods to prove the debt would cause hardship. It can depend on your situation, so you should consult with an attorney for specifics.
To determine if paying your small business loan will give you financial problems, you should calculate a few things.
Figure out the cost of your loan, including the principal amount and any interest you owe. You should also think about any major expenses you have to pay.
You'll be able to use that information to prove your case to SBA. It can be hard to determine risk of financial hardship, and sometimes that may be subjective.
But the more information you can provide, the easier it will be for you and your lawyer to prove your case.
Another thing to consider when applying for an Offer in Compromise is how long it will take to pay off your debt. If you can't pay your loan in a reasonable amount of time you may qualify for refinancing.
This applies to both paying your loan regularly or if SBA goes through loan collections. When it takes over a certain amount of time to pay back your loan, it may be worth it to SBA to compromise.
Unfortunately, it can be hard to determine what is reasonable and what's not. If you aren't profiting much, that may be one tool you can use.
Your basic small business expenses might also help you prove you can't pay the debt soon.
You can contact the SBA to determine what they or the third-party lender considers reasonable. Then, you can get a sense of the numbers.
If you don't know what the other party considers to be reasonable, then you can have a harder time.
As the debtor, you may need to provide extensive financial records to prove this. However, it can still be worth it if you want to avoid the hassle of bankruptcy.
If you have significant small business debt, you don't have to pay it off. You can apply for an Offer in Compromise, especially if your loan is with the SBA.
The process can take time, and you should consider a few things before you start. But it can be a great alternative to other liquidation methods.
Are you ready to apply for an SBA Offer in Compromise? Contact us for a case evaluation.
Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure
Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements
Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.
Client's small business obtained an SBA COVID EIDL for $301,000 pledging collateral by executing the Note, Unconditional Guarantee and Security Agreement. The business defaulted on the loan and the SBA CESC called the Note and Guarantee, accelerated the principal balance due, accrued interest and retracted the 30-year term schedule.
The loan was transferred to the Treasury's Bureau of Fiscal Service which resulted in the statutory addition of $90,000+ in administrative fees, costs, penalties and interest with the total debt now at $391.000+. Treasury also initiated a Treasury Offset Program (TOP) levy against the client's federal contractor payments for the full amount each month - intercepting all of its revenue and pushing the business to the brink of bankruptcy.
The Firm was hired to investigate and find an alternate solution to the bankruptcy option. After submitting formal production requests for all government records, it was discovered that the SBA failed to send the required Official 60-Day Pre-Referral Notice to the borrower and guarantor prior to referring the debt to Treasury. This procedural due process violation served as the basis to submit a Cross-Servicing Dispute to recall the debt from Treasury back to the SBA and to negotiate a reinstatement of the original 30-year maturity date, a modified workout, cessation of the TOP levy against the federal contractor payments and removal of the $90,000+ Treasury-based collection fees, interest and penalties.
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.
Our firm successfully facilitated the SBA settlement of a COVID-19 Economic Injury Disaster Loan (EIDL) f borrower received an SBA disaster loan of $150,000, but due to the severe economic impact of the COVID-19 pandemic, the business was unable to recover.
Despite the borrower’s efforts to maintain operations, shutdowns and restrictions significantly reduced the customer base and revenue, making continued operations unsustainable. After a thorough business closure review, we negotiated with the SBA, securing a resolution where the borrower paid only $6,015 to release the collateral, with no further financial liability for the owner/officer.
This case demonstrates how businesses affected by the pandemic can navigate SBA loan settlements effectively. If your business is struggling with an SBA EIDL loan, we specialize in SBA Offer in Compromise (SBA OIC) solutions to help close outstanding debts while minimizing financial burden.
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