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Common Mistakes to Avoid When Applying for an SBA Offer in Compromise

In the realm of Small Business Administration (SBA) offers in compromise, many entrepreneurs find themselves entangled in a web of complexity and confusion. It's crucial to approach the process with a clear understanding of the requirements and pitfalls to avoid. Here at Protect Law Group, we have compiled a comprehensive guide to help you navigate through the potential pitfalls and common mistakes encountered when applying for an SBA offer in compromise. By familiarizing yourself with these critical errors, you can enhance your chances of success.

Insufficient Documentation: When applying for an SBA offer in compromise, the importance of documentation cannot be overstated. Inadequate or incomplete documentation can lead to delays, rejections, or even a complete dismissal of your application. Ensure that you gather and organize all the necessary paperwork, including financial statements, tax returns, bank statements, and other supporting documents. Comprehensive documentation establishes credibility and reinforces your case, significantly increasing your chances of success.
Failure to Meet Eligibility Criteria: The SBA has specific eligibility criteria that must be met for an offer in compromise to be considered. One common mistake is applying for an offer without meeting these criteria, leading to automatic rejection. Ensure that you thoroughly review the SBA's guidelines and eligibility requirements before proceeding. By understanding the criteria and tailoring your application accordingly, you can position yourself for a successful outcome.
Inaccurate Valuation of Assets: Accurately valuing your business assets is crucial for a successful SBA offer in compromise. Overestimating or underestimating the value of your assets can have significant consequences, impacting the acceptance or rejection of your application. It is advisable to consult with professionals who can provide an objective assessment of your assets' worth. A precise valuation demonstrates transparency and credibility, increasing your chances of acceptance.
Lack of Understanding Regarding Reasonable Collection Potential: The concept of reasonable collection potential (RCP) plays a pivotal role in SBA offer in compromise evaluations. RCP is an assessment of your ability to repay your outstanding debts based on your income, expenses, assets, and liabilities. Many applicants make the mistake of overlooking this critical factor, resulting in a flawed application. Take the time to thoroughly understand RCP and ensure that your financial calculations accurately reflect your true repayment potential.
Inadequate Negotiation and Communication Skills: When it comes to negotiating with the SBA, effective communication and negotiation skills are paramount. Many applicants underestimate the importance of clear, concise, and persuasive communication throughout the process. Take the time to craft a well-written, professionally presented application that clearly outlines your financial situation, hardships faced, and your proposed resolution. By effectively conveying your case and presenting a compelling argument, you can significantly increase your chances of acceptance.
Missed Deadlines and Incomplete Applications: Deadlines are non-negotiable when it comes to submitting an SBA offer in compromise. Missing a deadline or submitting an incomplete application can result in immediate rejection. To avoid this mistake, meticulously review the requirements and ensure that all necessary documents are included. Set reminders for key submission dates, allowing ample time for any potential delays. By submitting a complete and timely application, you demonstrate your commitment and professionalism to the SBA.
Failure to Seek Professional Assistance: Navigating the complex terrain of an SBA offer in compromise can be overwhelming for many entrepreneurs. One of the most critical mistakes is attempting to tackle the process alone, without seeking professional assistance. Working with experienced professionals who specialize in SBA offers in compromise can provide invaluable guidance, increase your chances of success, and help you avoid costly mistakes. They possess the knowledge and expertise

The attorneys at Protect Law Group have years of experience dealing with the SBA. Contact us to today to set up a case evaluation.

Why Hire Us to Help You with Your Treasury or SBA Debt Problems?

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.

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$750,000 SBA 7A LOAN – NEGOTIATED WORKOUT AGREEMENT

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.

$975,000 SBA 7A LOAN - SBA OIC CASH SETTLEMENT

Our firm successfully negotiated an SBA offer in compromise (SBA OIC), settling a $974,535.93 SBA loan balance for just $18,000. The offerors, personal guarantors on an SBA 7(a) loan, originally obtained financing to purchase a commercial building in Lancaster, California.

The borrower filed for bankruptcy, and the third-party lender (TPL) foreclosed on the property. Despite the loan default, the SBA pursued the offerors for repayment. Given their limited income, lack of significant assets, and approaching retirement, we presented a strong case demonstrating their financial hardship.

Through strategic negotiations, we secured a favorable SBA settlement, reducing the nearly $1 million debt to a fraction of the amount owed. This outcome allowed the offerors to resolve their liability without prolonged financial strain.

$298,000 SBA 7A LOAN - NEGOTIATED WORKOUT AGREEMENT

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.

Common Mistakes to Avoid When Applying for an SBA Offer in Compromise