It's been a tough year for many small business owners. Find helpful information in our guide to Offers In Compromise and how to find legal assistance.
Book a Consultation CallJust like thousands of small businesses throughout the country, you took out a loan backed by the Small Business Administration (SBA). Then the pandemic hit, taking the economy and your business down with it and you have more than $30,000 in debt you are unable to pay.
Statistics show that one out of every six businesses, or 17.4%, have an SBA loan default. Once you default on an SBA loan the collection process will begin.
During the initial 60-day period of collections, you will need to either settle or provide “offers in compromise.” If you do not take appropriate steps the Treasury Department takes over collection proceedings.
If you are a small business owner, whether in default or managing to juggle your loans, you need to understand what happens if you default on a loan. Learn here how to file an offer in compromise and where to find legal assistance.
Rather than having your debt go to the Treasury Department where it will be subject to the addition of fees and costs up to 30%, you need to take immediate action during the 60-day period the SBA provides. During this period you may request either an administrative review or file an offer in compromise.
The compromise is an out-of-court settlement that works well for businesses that are out of business and liquidating their assets. The offer made must be acceptable to the borrowers and guarantors, be submitted in the proper format, and include specific elements.
An Offer in Compromise is submitted using SBA Form 1150. The Small Business Administration sets forth the elements of a compromise offer:
If there are any additional factors you may include those in your compromise offer. The offer will undergo a review of the financial factors surrounding the borrower and guarantor. These include the debtor’s ability to pay and one's earning potential.
Other considerations include the health and life expectancy of the business owner, conditions of the local economy, and any settlement arrangements they have with other creditors.
Because of the SBA loan default statute of limitations, laws surrounding collections, and precise requirements of the submission, it is best to contact an SBA Attorney as soon as you receive your 60-day notice.
When you are filing an Offer in Compromise on default, you are claiming you lack the ability to pay. If you are unable to prove financial hardship that makes it impossible for you to make payments, you will not receive a settlement agreement.
You and your financial situation will be scrutinized. This includes whether you owe other creditors, the amount you owe, etc. They will review your credit score and look to see if you are spending money in a way that is inconsistent with financial hardship. For instance, travel and frequently dining out do not indicate financial difficulty.
In some cases, your business assets will not pay your SBA loan debt in full. You must also be careful not to liquidate in a manner that places you into a legal problem with the lender. The first step is to speak with your lender about the liquidation process for your business loan.
It is possible the bank will be agreeable to you finding a buyer. The bank may prefer to place the business and its assets into a general auction. The important thing is to receive written permission from the bank before you proceed.
When you do liquidate your business any proceeds from the sale must go toward your SBA loan. If you use the proceeds from liquidating the business toward other personal debt, you place yourself in a position of receiving a denial on any settlement offer you make to SBA.
When taking out the SBA loan, if you provide your home as collateral, the SBA will look at its value first. If the home has enough equity to cover your SBA loan, they will probably not accept a settlement offer.
The SBA does not always value your home using market value minus loan balances. They may consider a discount off the market value. Because you agreed to use the home's value to pay off the debt on the loan, you may be forced to sell with all proceeds going to the SBA debt.
When you hire an attorney to prepare your SBA Offer in Compromise they will do evaluate your case for settlement. This step includes any or all of the following:
They may negotiate with the lender or SBA to obtain a settlement. The SBA has no obligation to accept an OIC but using an experienced SBA attorney puts you in the best position for acceptance of your offer.
If you do not take prompt action the SBA will transfer your case to the U.S. Treasury Department Offset Program (TOP). TOP may seize your tax refund, garnish your wages, and even take offsets against your Social Security payments.
The SBA may order an administrative wage garnishment (AWG) through your current employer to pay your delinquent debt. If you receive notice of an AWG you have the right to request a hearing before it becomes official.
The request for a hearing must be made in writing and must dispute either:
The process for requesting a hearing varies depending on whether it was initiated by the SBA or the Treasury Department. If the AWG is through the Treasury Department, follow the instructions on the letter to request a hearing. If the AWG is through the SBA, use the AWG Hearing Request Form.
If the SBA plans to take your federal income tax withholding refund to offset your SBA loan, they must advise you in writing in advance. This allows you to dispute the offset in the event it is being taken for debt no longer owing or other circumstances that warrant consideration.
If you requested a loan deferment, that modification or suspension of your loan payments is not a default. Many businesses requested and received deferments due to the pandemic, usually for about six months.
The SBA has issued extensions on their deferments until 2022. They add the loan payments you do not make during the deferment to the term of your loan. This means the final maturity date of your loan will be lengthened by the number of payments you have deferred.
Interest will continue to accrue during the deferment period. It is important you watch the deferment period and when payments must resume to prevent being caught in a default.
Part of the CARES Act for coronavirus aid the SBA Debt Relief Program’s creation provides relief to small businesses with a 7(a), 504, or microloans. Under the program, the SBA covers payments, including principal, interest, and fees for a six-month period.
SBA loans fall under the Federal Statute of Limitations Act, 28 U.S.C. 2415(a) which requires any action for damages to be filed within six (6) years of when the action accrues. It may also be filed within one (1) year after final decisions are rendered in an administrative proceeding. This limitations period ONLY applies to the government's timeframe to file a lawsuit against you in federal court. It does not apply to administrative remedies described herein.
There are also other interpretations regarding when the case must be filed. If payment is made, then the right of action begins to accrue again after each payment. For this reason, it may be difficult to determine if the government meets the statute of limitations requirements when they file an action against you or your business.
An SBA lawyer will know what the statute of limitations is, its various interpretations, and whether there are any problems with its compliance.
If you have an outstanding loan of $30,000+ to the SBA, contact the Protect Law Group for a case evaluation on filing offers in compromise. Our experienced SBA attorneys and federal agency practitioners provide real solutions to those who are experiencing SBA loan problems.
We provide representation nationwide to personal guarantors, federal debtors, and small business owners. Call us today at (833) 428-0937 to book a consultation.
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 received the SBA's Official 60-Day Notice for a loan that was obtained by her small business in 2001. The SBA loan went into default in 2004 but after hearing nothing from the SBA lender or the SBA for 20 years, out of the blue, she received the SBA's collection due process notice which provided her with only one of four options: (1) repay the entire accelerated balance immediately; (2) negotiate a repayment arrangement; (3) challenge the legal enforceability of the debt with evidence; or (4) request an OHA hearing before a U.S. Administrative Law Judge.
Client hired the Firm to represent her with only 13 days left before the expiration deadline to respond to the SBA's Official 60-Day Notice. The Firm attorneys immediately researched the SBA's Official loan database to obtain information regarding the 7(a) loan. Thereafter, the Firm attorneys conducted legal research and asserted certain affirmative defenses challenging the legal enforceability of the debt. A written response was timely filed to the 60-Day Notice with the SBA subsequently agreeing with the client's affirmative defenses and legal arguments. As a result, the SBA rendered a decision immediately terminating collection of the debt against the client's alleged personal guarantee liability saving her $50,000.
Client’s small business obtained an SBA 7(a) loan for $150,000. He and his wife signed personal guarantees and pledged their home as collateral. The SBA loan went into default, the term or maturity date was accelerated and demand for payment of the entire amount claimed was made. The SBA lender’s note gave it the right to adjust the default interest rate from 7.25% to 18% per annum. The business filed for Chapter 11 bankruptcy but was dismissed after 3 years due to its inability to continue with payments under the plan. Clients wanted to file for Chapter 7 bankruptcy, which would have been a mistake as their home had significant equity to repay the SBA loan balance in full as the Trustee would likely seize and sell the home to repay the secured and unsecured creditors. However, the SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection to the SBA. Clients then received the SBA Official 60-Day Notice and hired the Firm to respond to it and negotiate on their behalf. Clients disputed the SBA’s alleged balance of $148,000, as several payments made to the SBA lender during the Chapter 11 reorganization were not accounted for. To challenge the SBA’s claimed debt balance, the Firm Attorneys initiated expedited discovery to obtain government records. SBA records disclosed the true amount owed was about $97,000. Moreover, because the Clients’ home had significant equity, they were not eligible for an Offer in Compromise or an immediate Release of Lien for Consideration, despite being incorrectly advised by non-attorney consulting companies that they were. Instead, our Firm Attorneys recommended a Workout of $97,000 spread over a lengthy term and a waiver of the applicable interest rate making the monthly payment affordable. After back and forth negotiations, SBA approved the Workout proposal, thereby saving the home from imminent foreclosure and reducing the Clients' liability by nearly $81,000 in incorrect principal balance, accrued interest, and statutory collection fees.
Clients personally guaranteed SBA 7(a) loan balance of over $300,000. Clients also pledged their homes as additional collateral. SBA OIC accepted $87,000 with the full lien release against the home.
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