What Happens if You Default on a Loan in an LLC?
Protect Law Group's comprehensive services are tailored to assist businesses in resolving SBA loan default issues. Learn more today.
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.
Small business sole proprietor obtained an SBA COVID-EIDL loan for $500,000. Client defaulted causing SBA to charge-off the loan, accelerate the balance and refer the debt to Treasury's Bureau of Fiscal Service for aggressive collection. Treasury added $180,000 in collection fees totaling $680,000+. Client tried to negotiate with Treasury but was only offered a 3-year or 10-year repayment plan. Client hired the Firm to represent before the SBA, Treasury and a Private Collection Agency. After securing government records through discovery and reviewing them, we filed an Appeals Petition with the SBA Office of Hearings & Appeals (OHA) court challenging the SBA's referral of the debt to Treasury citing a host of purported violations. The Firm was able to negotiate a reinstatement and recall of the loan back to the SBA, participation in the Hardship Accommodation Plan, termination of Treasury's enforced collection and removal of the statutory collection fees.
The clients are personally guaranteed an SBA 7(a) loan. The SBA referred the debt to the Department of Treasury, which was seeking payment of $487,981 from our clients. We initially filed a Cross-Servicing Dispute, which was denied. As a result, we filed an Appeals Petition with the SBA Office of Hearings and Appeals asserting legal defenses and supporting evidence uncovered during the discovery and investigation phase of our services. Ultimately, the SBA settled the debt for $25,000 - saving our clients approximately $462,981.
Our firm successfully resolved an SBA COVID-19 Economic Injury Disaster Loan (EIDL) in the original amount of $150,000 for a Florida-based borrower. The loan, issued on June 4, 2020, was secured by business assets and potential personal liability through the SBA's Security Agreement.
Following the permanent closure of the business, we guided the client through the SBA’s Business Closure Review process and prepared a comprehensive collateral analysis. We negotiated directly with the SBA, obtaining a full release of the business collateral for $2,910 — satisfying the borrower’s obligations under the Security Agreement and eliminating any further enforcement risk against the pledged assets.
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