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 personally guaranteed an SBA 7(a) loan for $100,000 from the lender. The SBA loan went into early default in 2006 less than 12 months from disbursement. The SBA paid the 7(a) guaranty monies to the lender and subsequently acquired the deficiency balance of about $96,000, including the right to collect against the guarantor. However, the SBA sent the Official 60-Day Due Process Notice to the Client's defunct business address instead of his personal residence, which he never received. As a result, the debt was transferred to Treasury's Bureau of Fiscal Service where substantial collection fees were assessed, including accrued interest per the promissory note. Treasury eventually referred the debt to a Private Collection Agency (PCA) - Pioneer Credit Recovery, Inc. Pioneer sent a demand letter claiming a debt balance of almost $310,000 - a shocking 223% increase from the original loan amount assigned to the SBA. Client's social security disability benefits were seized through the Treasury Offset Program (TOP). Client hired the Firm to represent him as the debt continued to snowball despite seizure of his social security benefits and federal tax refunds as the involuntary payments were first applied to Treasury's collection fees, then to accrued interest with minimal allocation to the SBA principal balance.
We initially submitted a Cross-Servicing Dispute (CSD) challenging the referral of the debt to Treasury based on the defective notice sent to the defunct business address. Despite overwhelming evidence proving a violation of the Client's Due Process rights, the SBA still rejected the CSD. As a result, an Appeals Petition was filed with the SBA Office of Hearings & Appeals (OHA) Court challenging the SBA decision and its certification the debt was legally enforceable in the amount claimed. After several months of litigation before the SBA OHA Court, our Firm Attorney successfully negotiated an Offer in Compromise (OIC) Term Workout with the SBA Supervising Trial Attorney for $82,000 spread over a term of 74 months at a significantly reduced interest rate saving the Client an estimated $241,000 in Treasury collection fees, accrued interest (contract interest rate and Current Value of Funds Rate (CVFR)), and the PCA contingency fee.
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.
Clients executed several trust deeds pledging seven (7) real estate properties and unconditional personal guarantees for an SBA 7(a) loan from the participating lender. The clients' small business failed and eventually defaulted on repayment of the loan exposing all collateral pledged by the clients. The SBA subsequently acquired the loan balance from the lender, including the right to liquidate and collect all pledged collateral pursuant to the trust deed instruments.
The Firm was hired to negotiate separate release of lien proposals for all 7 real estate properties. In preparation for the work assignment, the Firm Attorneys initiated discovery to secure records from the SBA and Treasury's Bureau of Fiscal Service. After reviewing the records and understanding the interplay between the lender and the SBA, the attorneys then prepared, submitted and negotiated the release of lien (ROL) for each of the 7 real estate properties for consideration.
After submitting the proposals, the assigned SBA Loan Specialists approved each ROL package - significantly reducing the total SBA debt claimed.
.jpg)
