A Simple Guide to SBA Loans
Are you interested in taking out an SBA loan? Here's everything you need to know about taking out and repaying SBA loans.
We provide people who are facing an SBA loan default with solutions. We analyze SBA loan problems and provide solutions such as an SBA offer in compromise.
Book a Consultation CallDealing with the idea that you might be facing an SBA loan default can be terrifying. The SBA attorneys in our office are skilled at helping clients understand all the facets of their situation. We will advise you as to the potential for an SBA offer in compromise. You should never face your SBA loan problems alone. It is important to retain the services of an attorney who can help you through this difficult time in your life. Please contact us for a consultation.
Structural barriers appear to be holding back bank lending to small businesses.
A long move toward consolidation of banking assets into less and less banks is denying a key source of capital for small firms. Community banks are being consolidated by big banks, with the number of community banks dropping to fewer than 7,000 today, a decrease from over 14,000 in the mid-1980s, while average bank assets continues to rise. This trend was made even greater by the financial crisis.
Additionally, the costs of borrowers and lenders matching up is very high. It is difficult for qualified borrowers to find willing lenders, and vice versa. Federal Reserve research finds that small-business borrowers can spend almost 25 hours on paperwork for bank loans, and are often submitting applications to multiple banks. Successful applicants wait weeks or, in some cases, a month or more for the funds to actually be approved and made available.
Furthermore, small-business loans, usually loans below $1 million, are considerably less profitable than large business loans for several reasons, including: Small-business lending is riskier than large-business lending. Small businesses are much more sensitive to swings in the economy, have higher failure rates, and fewer assets to collateralize.
Determining creditworthiness of small businesses can be hard due to a lack of transparent information. Little, if any, public information exists about the performance of most small businesses as they are not subject to disclosure and securities laws like larger borrowers. Many small businesses also fail to keep detailed balance sheets, use bare bones tax returns, and keep insufficient income statements. Community banks have historically placed more importance on relationships with borrowers in their underwriting processes, but these relationships are expensive and have not in the past translated well to automated methods for assessing creditworthiness, which are favored by larger banks.
Transaction costs to process a $100,000 loan are similar to a $1 million loan, but with less profit. As a result, banks are less likely to do business lending at the smallest dollar level. Some banks, particularly larger banks, have significantly reduced or eliminated loans below a certain threshold, typically $100,000 or $250,000, or simply will not lend to small businesses with revenue of less than $2 million, as a way to limit time-consuming applications from small businesses. This creates a problem in the market as over half of small businesses are believed to be looking for loans of under $100,000, leaving a large gap in the small business loan market. Often times, the biggest banks refer small businesses below such revenue thresholds or seeking such low dollar loans to their small business credit card products, which earn higher yields.
As the economy chugs along in its slow recovery from the recession, it appears unlikely that all the barriers to bank lending to small business will disappear. If you are in danger of falling into an SBA loan default, please contact us for a case evaluation.
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.
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.
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.
The client personally guaranteed an SBA 7(a) loan for $150,000. His business revenue decreased significantly causing default and an accelerated balance of $143,000. The client received the SBA's Official 60-day notice with the debt scheduled for referral to the Treasury’s Bureau of Fiscal Service for aggressive collection in less than 26 days. We were hired to represent him, respond to the SBA's Official 60-day notice, and prevent enforced collection by the Treasury and the Department of Justice. We successfully negotiated a structured workout with an extended maturity date that included a reduction of the 14% interest rate and removal of substantial collection fees (30% of the loan balance), effectively saving the client over $242,000.
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