Can't Pay Your SBA Loan? Here's How to Qualify for an SBA Loan Deferment
Are you unable to pay off your SBA loan or need to decrease the amount you pay? It's possible to get an SBA loan deferment. Here's how to qualify.
Review Treasury collection fees on federal non-tax debts, the concerns they raise, and issues to discuss when challenging a debt balance.
Book a Consultation CallWhen a federal non-tax debt (SBA, HUD, Department of Education or DFAS) is transferred to the U.S Treasury Department’s Bureau of Fiscal Service for collection, the agency automatically adds collection fees up to 32% of the principal amount originally claimed. Let’s say you defaulted on an SBA loan in the amount of $500,000. Once the debt is transferred to Treasury, it can add up to $160,000 in collection fees (32%) totaling $660,000.
Treasury asserts that it has the right to collect these percentage-based collection fees pursuant to 31 U.S.C. § 3717(e).
This provision provides that a federal agency “shall assess on a claim owed by a person . . . a charge to cover the cost of processing and handling a delinquent claim.”
Treasury also relies on a federal statute that permits the Secretary of the Treasury to either retain a portion of amounts it collects on debts or bill the federal creditor agency transferring the claim to the Treasury “based on actual administrative offsets completed.” 31 U.S.C. § 3716(c)(4).
A federal regulation further states that “[a]gencies shall assess administrative costs incurred for processing and handling delinquent debts. The calculation of administrative costs should be based on actual costs incurred or upon estimated costs as determined by the assessing agency.” 31 C.F.R. § 901.9(c).
Based upon these statutes and regulations, the government lays claim to a 28-32% surcharge.
In the end, once a federal non-tax debt is placed in the hands of Treasury or with a Private Collection Agency under contract, these collection fees become part of the overall balance owed to the federal government by the debtor.
One of the problems with this scheme – especially with SBA debts, is that there appears to be more incentive for the SBA to decline or reject a reasonable settlement proposal (i.e., Offer in Compromise, Forbearance or Structured Repayment Agreement) and just transfer the claims to Treasury in order to take advantage of these percentage-based collection fees since they automatically become part of the overall debt once the cross-servicing has been completed and Treasury takes jurisdiction over a case.
From the SBA debtor’s perspective, this simply does not pass the “smell test.” It is unfair because the collection fees are not “reasonable.”
What actual costs and expenses has Treasury incurred or sustained to justify the additional payment of these percentage-based collection fees?
What actual notice did the former SBA borrower (the defunct small business) or the SBA guarantor (the SBA debtor) receive in connection with the automatic addition of these collection fees?
There is nothing in the actual Note or Unconditional Guarantee that specifically identifies that in the event of default, the SBA debtor shall be liable to pay for these “collection fees” pursuant to the federal statutes and regulations as aforementioned.
Rather, the SBA’s Unconditional Guarantee only address the following term: “ENFORCEMENT EXPENSES. Guarantor promises to pay all expenses Lender incurs to enforce this Guarantee, including, but not limited to, attorney’s fees and costs.”
This term does not include these percentage-based “collection fees.” It specifically cites to expenses (which is required to be reasonable (must be actual and proven), including “attorney’s fees and costs.” However, most of the time, Treasury is not able to cite to any evidence to support a surcharge of “reasonable attorney’s fees and costs” associated with collecting the debt pursuant to the terms of the agreement.
Treasury never provides an accounting of the reasonable attorney time expended in enforcing the guarantee agreement and note, the reasonable value of this time, or any other reasonable costs associated with their so-called “enforcement expenses.”
Moreover, these “collection fees” are extrinsic to the agreement that the SBA debtor signed as they are based on the federal statutes and regulations as cited above. The inclusion of this extrinsic collection fees provision violates a substantive principle of basic contract law – the parol evidence rule.
According to the parol evidence rule, when parties enter into an integrated written agreement, extrinsic evidence may not be relied upon to alter or add to the terms of the writing. It is founded on the principle that when the parties put all the terms of their agreement in writing, the writing itself becomes the agreement. The written terms supersede statements made before, during or after the negotiations of the final agreement. The purpose of the rule is to ensure that the parties’ final understanding, deliberately expressed in writing, is not subject to change.
Hence, the inclusion of the 28%-32% collection fees claimed by Treasury which is not part of the original note or guarantee agreement signed by the SBA debtor arguably violates the parol evidence rule and therefore, should not be a compensable element of damages that should be unilaterally awarded to Treasury.
Don’t try to resolve SBA debt and Treasury Collection fee issues by yourself. Speak to an SBA and Treasury Workout Attorney with Protect Law Group.
Protect Law Group has proven, nationwide experience resolving SBA loan problems and Treasury debts.
Owe more than $30,000? Contact Protect Law Group for a Case Evaluation or call us toll-free at 1-888-756-9969.
We can analyze your SBA debt or Treasury problems and advise you on potential solutions.
This presentation contains images that were used under a Creative Commons License. Click here to see the full list of images and attributions:
https://link.attribute.to/cc/1378494
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.
Our firm successfully resolved an SBA 7(a) loan default in the amount of $212,000 on behalf of an individual guarantor. The borrower’s business experienced a significant downturn in revenue and was unable to sustain operations, ultimately leading to closure and a remaining personal guaranty obligation.
After conducting a thorough financial review and preparing a comprehensive SBA Offer in Compromise (SBA OIC) submission, we negotiated directly with the SBA and lender to achieve a settlement of $50,000—approximately 24% of the outstanding balance. This favorable resolution released the guarantor from further personal liability and provided the opportunity to move forward free from the burden of enforced collection.
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.
Clients obtained an SBA 7(a) loan for their small business in the amount of $298,000. They pledged their primary residence and personal guarantees as direct collateral for the loan. The business failed, the lender was paid the 7(a) guaranty money and the debt was assigned to the SBA. Clients received the Official 60-Day Notice giving them a couple of options to resolve the debt balance directly with the SBA before referral to Treasury's Bureau of Fiscal Service. The risk of referral to Treasury would add nearly $95,000 to the SBA principal loan balance. With the default interest rate at 7.5%, the amount of money to pay toward interest was projected at $198,600. Clients hired the Firm with only 4 days left to respond to the 60-Day due process notice. Because the clients were not eligible for an Offer in Compromise (OIC) due to the significant equity in their home and the SBA lien encumbering it, the Firm Attorneys proposed a Structured Workout to resolve the SBA debt. After back and forth negotiations, the SBA Loan Specialist assigned to the case approved the Workout terms which prevented potential foreclosure of their home, but also saved the clients approximately $294,000 over the agreed-upon Workout term with a waiver of all contractual and statutory administrative fees, collection costs, penalties, and interest.
.jpg)
