SBA Loan Requirements: Complete List for Eligibility
One viable way to fund your startup is to get a loan from the SBA. Find the SBA loan requirements in an easy-to-follow format here.
The transcript of the video follows below for further review.
Are SBA Loan Debts Dischargeable in Chapter 7 Bankruptcy?
The short answer to this commonly-asked question is – generally, yes. But, there are significant risks that SBA business owners, SBA guarantors and SBA obligors should be aware of before making the final decision of filing for a Chapter 7 bankruptcy to discharge an SBA guaranteed loan.
Question: What significant risks can materialize if an SBA debtor files bankruptcy to discharge an SBA loan debt associated with an SBA Unconditional Guarantee?
Answer: The most significant risk that can occur is where the SBA 7(a) Lender, Certified Development Corporation (CDC) or the SBA files a Complaint initiating an Adversary Proceeding under 11 U.S.C.A. § 523(a)(2)(B) in response to an SBA debtor’s Chapter 7 bankruptcy filing.
Question: What are the allegations that can accompany a Complaint for an Adversary Proceeding?
Answer: Generally, the Plaintiff (SBA 7(a) Lender, CDC or the SBA) requests the federal bankruptcy court to find that the SBA loan balance is non-dischargeable because the SBA debtor obtained the SBA loan from the Plaintiff fraudulently by providing it with documented misrepresentations or false financial statements regarding the financial condition of the business or of the personal guarantor(s).
The Plaintiff would generally argue that, as a result of the SBA debtor’s fraud or misrepresentation, it has incurred losses in the outstanding amount of the SBA debt, plus costs, interest, attorneys’ fees, and expenses, for which it seeks a judgment.
Question: What federal laws govern non-dischargability of eligible debts under a Chapter 7 bankruptcy filing?
Answer: The non-dischargeability of debts is governed by 11 U.S.C.A. § 523, which provides, in
material part:
(a) A discharge under section 727[5] . . . of this title does not discharge an individual debtor from any debt —
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained, by —
…
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive[.]
…
(c)(1) Except as provided . . ., the debtor shall be discharged from a debt of a kind
specified in paragraph (2) . . . of subsection (a) of this section, unless, on request of the creditor to whom such debt is owed, and after notice and a hearing, the court determines such debt to be excepted from discharge under paragraph (2) . . ., as the case may be, of subsection (a) of this section. 11 U.S.C.A. § 523.
Question: What kind of proof must the shown against the SBA debtor in order to convince a court to issue an order of non-dischargeability of an SBA debt?
Answer: In general, a determination of non-dischargeability under § 523(a)(2)(B) requires proof that the Plaintiff (SBA 7(a) Lender, CDC or the SBA) loaned money after it reasonably relied upon false financial documents concerning the SBA debtor and/or an insider, provided to it by the SBA debtor either directly or indirectly, and that the SBA debtor intended to deceive the Plaintiff when doing so.
Question: Does fraudulent behavior expose an SBA debtor to criminal charges as well?
Answer: The kinds of behavior required to have an SBA debt be considered not dischargeable can sometimes result in criminal charges.
Where applicable, an SBA debtor can be charged with grand theft or other related fraud in connection with procuring an SBA guaranteed loan.
Question: What other kind of SBA debtor behavior can result in an SBA debt not being discharged in bankruptcy?
Answer: There are two other main kinds of potentially problematic behavior:
Fraud in a fiduciary capacity can be alleged through fraud, trick and device, with a preconceived design and intent, that an SBA debtor misappropriated monies from the Plaintiff SBA 7(a) Lender, CDC or SBA.
The allegations about injury can center around the SBA debtor’s actions and the claim that they were willful, malicious, and the proximate cause of the financial damages.
Question: Does the bankruptcy court have the power to decide whether a disputed claim re an SBA debt be discharged, and to determine the amount an SBA debtor owes?
Answer: Simply put, yes – a bankruptcy court has this power.
Although it's clear that Congress has the power to legislate about bankruptcy under the U.S. Constitution, for decades there have been big debates about how much power bankruptcy judges can have under the Constitution.
The situation was complicated a few years ago by an opinion of the U.S Supreme Court that somewhat restricted the power of bankruptcy judges.
However, the Supreme Court opinion does not apply to non-dischargeability issues, which are firmly within the jurisdiction of the federal bankruptcy courts.
If you are considering filing bankruptcy for an SBA loan debt stemming from an SBA Unconditional Guarantee or a Treasury/Bureau of Fiscal Service debt problem, contact us today for an initial consultation with an experienced SBA or Treasury workout attorney at 1-888-756-9969
We can analyze your SBA loan, Treasury/BFS debt or Private Collection Agency problem and advise you on a range of potential solutions.
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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.
Small business sole proprietor obtained an SBA COVID-EIDL loan for $500,000. Client defaulted causing SBA to charge-off the loan, accelerate the balance and refer the debt to Treasury's Bureau of Fiscal Service for aggressive collection. Treasury added $180,000 in collection fees totaling $680,000+. Client tried to negotiate with Treasury but was only offered a 3-year or 10-year repayment plan. Client hired the Firm to represent before the SBA, Treasury and a Private Collection Agency. After securing government records through discovery and reviewing them, we filed an Appeals Petition with the SBA Office of Hearings & Appeals (OHA) court challenging the SBA's referral of the debt to Treasury citing a host of purported violations. The Firm was able to negotiate a reinstatement and recall of the loan back to the SBA, participation in the Hardship Accommodation Plan, termination of Treasury's enforced collection and removal of the statutory collection fees.
Small business and guarantors obtained an SBA COVID-EIDL loan for $1,000,000. Clients defaulted causing SBA to charge-off the loan, accelerate the balance and refer the debt to Treasury's Bureau of Fiscal Service for collection. Treasury added nearly $500,000 in collection fees totaling $1,500,000. Clients were served with the SBA's Official 60-Day Notice and exercised the Repayment option by applying for the SBA’s Hardship Accommodation Plan. However, their application was summarily rejected by the SBA without providing any meaningful reasons. Clients hired the Firm to represent them against the SBA, Treasury and a Private Collection Agency. After securing government records through discovery, we filed an Appeals Petition with the SBA Office of Hearings & Appeals (OHA) court challenging the SBA's referral of the debt to Treasury. During litigation and before the OHA court issued a final Decision and Order, the Firm successfully negotiated a reinstatement and recall of the loan back to the SBA, a modification of the original repayment terms, termination of Treasury's enforced collection and removal of the statutory collection fees.
Client’s small business obtained an SBA 7(a) loan for $150,000. He and his wife signed personal guarantees and pledged their home as collateral. The SBA loan went into default, the term or maturity date was accelerated and demand for payment of the entire amount claimed was made. The SBA lender’s note gave it the right to adjust the default interest rate from 7.25% to 18% per annum. The business filed for Chapter 11 bankruptcy but was dismissed after 3 years due to its inability to continue with payments under the plan. Clients wanted to file for Chapter 7 bankruptcy, which would have been a mistake as their home had significant equity to repay the SBA loan balance in full as the Trustee would likely seize and sell the home to repay the secured and unsecured creditors. However, the SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection to the SBA. Clients then received the SBA Official 60-Day Notice and hired the Firm to respond to it and negotiate on their behalf. Clients disputed the SBA’s alleged balance of $148,000, as several payments made to the SBA lender during the Chapter 11 reorganization were not accounted for. To challenge the SBA’s claimed debt balance, the Firm Attorneys initiated expedited discovery to obtain government records. SBA records disclosed the true amount owed was about $97,000. Moreover, because the Clients’ home had significant equity, they were not eligible for an Offer in Compromise or an immediate Release of Lien for Consideration, despite being incorrectly advised by non-attorney consulting companies that they were. Instead, our Firm Attorneys recommended a Workout of $97,000 spread over a lengthy term and a waiver of the applicable interest rate making the monthly payment affordable. After back and forth negotiations, SBA approved the Workout proposal, thereby saving the home from imminent foreclosure and reducing the Clients' liability by nearly $81,000 in incorrect principal balance, accrued interest, and statutory collection fees.
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