Can't Pay Your SBA Loan? Here's What to Expect
Worried about not being able to make your SBA loan payments? Don't risk losing your assets, consult with our SBA loan default attorneys today.
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 obtained an SBA 7(a) loan for $324,000 to buy a small business and its facility. The business and real estate had an appraisal value of $318,000 at the time of purchase. The business ultimately failed but the participating lender abandoned the business equipment and real estate collateral even though it had valid security liens. As a result, the lender recouped nearly nothing from the pledged collateral, leaving the business owners liable for the deficiency balance. The SBA paid the lender the 7(a) guaranty money and was assigned ownership of the debt, including the right to collect. However, the clients never received the SBA Official 60-Day Notice and were denied the opportunity to negotiate an Offer in Compromise (OIC) or a Workout directly with the SBA before being transferred to Treasury's Bureau of Fiscal Service, which added an additional $80,000 in collection fees. Treasury garnished and offset the clients' wages, federal salary and social security benefits. When the clients tried to negotiate with Treasury by themselves, they were offered an unaffordable repayment plan which would have caused severe financial hardship. Clients subsequently hired the Firm to litigate an Appeals Petition before the SBA Office & Hearings Appeals (OHA) challenging the legal enforceability and amount of the debt. The Firm successfully negotiated a term OIC that was approved by the SBA Office of General Counsel, saving the clients approximately $205,000.
Our firm successfully resolved an SBA COVID-19 Economic Injury Disaster Loan (EIDL) default in the amount of $150,000 on behalf of Illinois-based client. After the business permanently closed due to the economic impacts of the pandemic, the owners faced potential personal liability if the business collateral was not liquidated properly under the SBA Security Agreement.
We guided the client through the SBA’s Business Closure Review process, prepared a comprehensive financial submission, and negotiated directly with the SBA to release the collateral securing the loan. The borrower satisfied their collateral obligations with a payment of $2,075, resolving the SBA’s security interest.
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.
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