SBA Loan Default: Bad Times Ahead for SBA Lending?
We will analyze your SBA loan problems and advise you on potential solutions such as an SBA offer in compromise for your SBA loan default.
We are attorneys that exclusively work on SBA OIC cases and other federal debt issues.
Book a Consultation CallThe Massachusetts Bankruptcy Court, pursuant to an enforcement action brought by the United States Trustee, ordered sanctions and issued an injunction against a bankruptcy petition preparer in Lawrence, Massachusetts. The case can be found here. The petition preparer, Pinnacle Financial Consulting, LLC (“Pinnacle”) along with its owner, were ordered to pay monetary sanctions, return money to bankruptcy debtors and were enjoined from filing any future bankruptcy petitions in Massachusetts.
The gist of the U.S. Trustee’s complaint and the Court’s findings was that Pinnacle engaged in the unauthorized practice of law when it charged consumers for the preparation of bankruptcy petitions. There were no lawyers at Pinnacle. However, the fact that Pinnacle’s president went to law school (but never was admitted to the bar) was used to suggest to consumers that the company had legal expertise. In fact, Pinnacle touted a “Pinnacle System” that it suggested had significant value. Non-attorney bankruptcy petition preparers are not illegal, per se, but they are not allowed to advise clients or do anything more than simply type forms. By emphasizing its supposed expertise, Pinnacle was acting as more than just a typist, and it encroached on a province only allowed to licensed attorneys.
It turns out for good reason. Consumers are usually harmed by operators who talk a good game but who are unregulated and unaccountable. In this case, Pinnacle falsely advertised its discharge rate, and it also guided clients on how to claim the Minnesota exemptions instead those in place here in Massachusetts.
It is in immigrant communities, like Lawrence, Massachusetts, that these types of organizations usually thrive. In Latino communities, especially, such organizations have a special ability to mislead because, in certain Latin American countries, the popular term “notario” has a very different meaning from the term “notary” here. To help protect consumers, the U.S. Trustee should consider bringing more enforcement actions of this nature.
Though consumers sometimes think that the bankruptcy systems will protect them simply because they are needy and hard-up, that is not always the case. Bankruptcy is an adversarial process, and there is little recourse for a consumer who loses property or has his case dismissed due to filing errors or poor strategic choices.
In the SBA context, there are many non-attorney firms advertising their SBA loan debt resolution services. However, as noted above, the same argument can apply and questions need to be answered as such, "can non-attorney bankers or former disbarred attorneys represent an SBA debtor's interest when he or she is not authorized to advise on legal matters such as SBA administrative law (i.e. SBA SOPs, Code of Federal Regulations (CFRs), federal law, bankruptcy issues and exemptions) or appeal your case to the SBA Office of Hearing & Appeals and be able to argue SBA OHA decisions and other procedural and substantive legal issues before an Administrative Law Judge (ALJ)?"
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 $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.
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.
Our firm successfully assisted a client in closing an SBA Disaster Loan tied to a COVID-19 Economic Injury Disaster Loan (EIDL). The borrower obtained an EIDL loan of $153,800, but due to the prolonged economic impact of the COVID-19 pandemic, the business was unable to recover and ultimately closed.
As part of the business closure review and audit, we worked closely with the SBA to negotiate a resolution. The borrower was required to pay only $1,625 to release the remaining collateral, effectively closing the matter without further financial liability for the owner/officer.
This case highlights the importance of strategic negotiations when dealing with SBA settlements, particularly for businesses that have shut down due to unforeseen economic challenges. If you or your business are struggling with SBA loan debt, we focus on SBA Offer in Compromise (SBA OIC) solutions to help settle outstanding obligations efficiently.
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