.jpeg)
What Are Sba 7a Loans and What Are the Eligibility Requirements?
SBA 7a loans are a great way to finance an organization and options are great for businesses. Learn about the different types and eligibility.
Can I use an SBA loan to pay off personal debt? Read further to discover how you can and can't use your SBA loan funds.
Book a Consultation CallLike many small business owners, your business exists as an extension of yourself. It is your identity and your hard work. However, you cannot use you SBA loan to pay off your personal debt, such as credit cards, mortgage or other debts.
Pursuant to the SBA's Standard Operating Procedures (SOP), the use of 7a loan funds is limited to the following:
Paying your personal debts does not fit the bill of any of the approved categories.
Similarly, the SBA SOP contain a list of business loan proceeds restrictions:
Notice the first category would exclude payment of your personal debts. Part of the reason for this restriction consists of the tax implication. Money used to pay your personal debts should be claimed as income and therefore income taxes paid thereon. However, if you use your SBA funds to pay your personal debts, you receive income tax free. The other reason for the restriction surrounds the primary goal of the SBA program to help small businesses and create jobs. Using loan funds for you personal debts accomplishes neither of those goals.
The ramifications will cause a great deal of potential legal and financial problems. The loan could be declared in default and called immediately. You could face legal issues for fraud as well as tax issues with the IRS for failing to report income. The business loan is for the business and you should always keep that in mind.
If you are facing an SBA loan default, contact our offices today to speak with an experienced SBA attorney. Call toll free 833-428-0937 or submit your information on our website.
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.
Clients personally guaranteed SBA 504 loan balance of $750,000. Clients also pledged the business’s equipment/inventory and their home as additional collateral. Clients had agreed to a voluntary sale of their home to pay down the balance. We intervened and rejected the proposed home sale. Instead, we negotiated an acceptable term repayment agreement and release of lien on the home.
Clients' 7(a) loan was referred to Treasury's Bureau of Fiscal Service for enforced collection in 2015. They not only personally guaranteed the loan, but also pledged their primary residence as additional collateral. One of the clients filed for Chapter 7 bankruptcy thinking that it would discharge the SBA 7(a) lien encumbering their home. They later discovered that they were mistakenly advised. The Firm was subsequently hired to review their case and defend against a series of collection actions. Eventually, we were able to negotiate a structured workout for $180,000 directly with the SBA, saving them approximately $250,000 (by reducing the default interest rate and removing Treasury's substantial collection fees) and from possible foreclosure.
Client personally guaranteed an SBA 7(a) loan to help with a relative’s new business venture. After the business failed, Treasury was able to secure a recurring Treasury Offset Program (TOP) levy against his monthly Social Security Benefits based on the claim that he owed over $1.2 million dollars. We initially submitted a Cross-Servicing Dispute, but then, prepared and filed an Appeals Petition with the SBA Office of Hearings and Appeals (SBA OHA). As a result of our efforts, we were able to convince the SBA to not only terminate the claimed debt of $1.2 million dollars against our client (without him having to file bankruptcy) but also refund the past recurring amounts that were offset from his Social Security Benefits in connection with the TOP levy.
.jpg)
