San Diego Businesses May Take Advantage of New Small Business Reorganization
Small businesses facing mounting debt obligation from an SBA loan may seek a small business reorganization under the new bankruptcy law.
When you start a business, the last thing on your mind is that it will fail! After all, you’ve put in so much time and effort to help it succeed. However, not all businesses are successful, but nearly every business must take out loans. But what happens to those loans if the business fails, and what does SBA loan default entail?
Here at Protect Law Group, our SBA debt attorneys are here to help you find realistic solutions to your SBA loan debt. We want you to resolve your debt problems, and we also know that navigating the US Treasury Debt Collection process can be challenging. Learn more about paying back an SBA loan after a business fails, and if you owe more than $30,000 and you’d like to schedule a consultation with one of our SBA debt attorneys, contact us today.
Business loan default can be overwhelming, but what exactly does default mean? If you’ve missed one payment, that doesn’t necessarily mean you are defaulting on your loan. Most lenders define default loans as missing two to three payments, and they will then report you to a credit agency, which will record any further missed payments.
Ultimately, each small business lender considers loan default at different points, and you’ll need to look at your loan agreement to determine what that point is for your particular small business loan. If your loan defaults, they will reach out to you and ask why you have missed your payments or offer options for creating a more realistic payment schedule. Ideally, you should be able to get back on track, but if your business has failed, that will make it much more difficult.
Like any loan, the more payments you miss, the more aggressive collections practices your lender will attempt. Those practices will also change depending on the amount you own or how long you have been missing payments.
If your loan is backed by collateral, like your business equipment, the lender may take that equipment to recoup some of the money you owe. If your business has failed, you may be able to cover the amount of money you owe by selling off your assets, since you no longer need them to run your business.
If you have made a personal guarantee on your business loan, then the stakes are even higher. A personal guarantee means that you personally are responsible for repaying the loan, even if your business has failed and cannot pay back the loan. Depending on the situation, your lender can come after your personal assets rather than just the business assets.
An SBA loan has a different process than other types of business loans, and the lender will submit a claim to the Small Business Administration after collecting the collateral associated with the loan. The SBA will pay the lender for the portion of the loan that they have guaranteed, and then contact you to create a plan for repaying your debt with the SBA directly. The SBA guarantees up to 75% to 85% of business loans, and You may be able to negotiate a smaller payment, and our SBA lawyers can help make that possible.
If your business has failed and you are feeling overwhelmed by debt, our debt attorneys are here to help. We can provide you with realistic solutions to SBA loan problems and get you back on track. We look forward to working with you and helping you through this stressful period!
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’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.
Clients executed personal and corporate guarantees for an SBA 7(a) loan from a Preferred Lender Provider (PLP). The borrower corporation defaulted on the loan exposing all collateral pledged by the Clients. The SBA subsequently acquired the loan balance from the PLP, including the right to collect against all guarantors. The SBA sent the Official Pre-Referral Notice to the guarantors giving them sixty (60) days to either pay the outstanding balance in full, negotiate a Repayment (Offer in Compromise (OIC) or Structured Workout (SW)), challenge their alleged guarantor liability or file a Request for Hearing (Appeals Petition) with the SBA Office of Hearings & Appeals.
Because the Clients were not financially eligible for an OIC, they opted for Structured Workout negotiations directly with the SBA before the debt was transferred to the Bureau of Fiscal Service, a division of the U.S. Department of Treasury for enforced collection.
The Firm was hired to negotiate a global Workout Agreement directly with the SBA to resolve the personal and corporate guarantees. After submitting the Structured Workout proposal, the assigned SBA Loan Specialist approved the requested terms in under ten (10) days without any lengthy back and forth negotiations.
The favorable terms of the Workout included an extended maturity at an affordable principal amount, along with a significantly reduced interest rate saving the Clients approximately $181,000 in administrative fees, penalties and interest (contract interest rate and Current Value of Funds Rate (CVFR)) as authorized by 31 U.S.C. § 3717(e) had the SBA loan been transferred to BFS.
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.
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