Businesses can suffer from excessive debt, just as individuals can. According to the SBA, almost half of all small businesses fail within the first five years, mostly because of poor credit, excessive debt and insufficient capital. Borrowing is sensible when it’s needed to finance expansion or boost cash flow, but many businesses end up in SBA loan default because they are not able to repay what they owe. Here, business owners can learn their options for dealing with debt, including making an SBA Offer in Compromise
The most ideal option for many is to try to save the business while managing debt. Many business owners take money out of their pockets to fund the company, but this strategy should only be taken if it is likely to pay off in the long term. If the business cannot be saved with an infusion of private funds, the owner must identify ways to cut costs. While layoffs are not the most appealing option, they may be necessary to keep a struggling business afloat.
Business owners should stay in touch with customers, seeking ways to increase exposure and revenue. Offer markdowns to loyal customers if they pay quicker, and contact suppliers to ask for payment arrangements and discounts. If this is done early enough, it may be sufficient to save a struggling company.
The business owner should contact creditors and advise them of the situation. Ignoring an SBA demand letter will make the situation worse, and it is easier to handle debt early on through a Tax Offset Program. It is in everyone’s best interests to find a workable solution, and clients should request lower interest rates, increased credit lines and/or an SBA Offer in Compromise.
Another option is to try to sell the company to repay creditors. It is easier to deal with a single buyer than to go through SBA loan foreclosure, and an orderly sale may free the owner from later obligations once creditors are paid. However, if the business’ debts are more than its assets, it may be hard to find a buyer.
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.
Client personally guaranteed SBA 7(a) loan for $350,000. The small business failed but because of the personal guarantee liability, the client continued to pay the monthly principal & interest out-of-pocket draining his savings. The client hired a local attorney but quickly realized that he was not familiar with SBA-backed loans or their standard operating procedures. Our firm was subsequently hired after the client received the SBA's official 60-day notice. After back-and-forth negotiations, we were able to convince the SBA to reinstate the loan, retract the acceleration of the outstanding balance, modify the original terms, and approve a structured workout reducing the interest rate from 7.75% to 0% and extending the maturity date for a longer period to make the monthly payments affordable. In conclusion, not only we were able to help the client avoid litigation and bankruptcy, but our SBA lawyers also saved him approximately $227,945 over the term of the workout.
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.
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.
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