SBA Default and Offer In Compromise.
SBA Default and Offer in Compromise - the OIC process may allow you to settle your loan for pennies on the dollar.
SBA Loan Programs
Of the top five reasons why businesses fail, two of them are because of money. 29% of small businesses run out of cash. 82% of businesses experience cash flow problems.
But there are steps a business can take to help them with their financial woes. The Small Business Administration (SBA) has loan programs that cater specifically to the needs of small businesses.
But choosing the right loan for your business is another matter. We're going through the various SBA loan programs to help you make the best choice.
https://youtu.be/JvnY-joYrIQ
The 7(a) loan program is the most popular of all the SBA loan programs. It's also the most flexible.
Most of the 7(a) programs are used by businesses for working capital, asset purchases, and leasehold improvements. Any owner who owns a stake of more than 20% of their business is required to personally guarantee the loan.
The SBA provides a maximum guarantee of up to $5 million or 75% of the loan amount, whichever is less. For loan amounts fewer than $150,000 the maximum amount the SBA will guarantee is 85%.
Lenders working with this program cannot charge many of the usual fees associated with commercial loans. There is, however, a one-time guaranty fee that the agency charges the lender. The lender is allowed to pass that fee on to you.
If the loan is smaller than $150,000 there may be no fees associated with the loan.
To apply for this loan, you'll need two to three years of financial statements and proof of owner's equity in the business. It's also restricted to small business owners with less than $7 million in tangible net worth and less than $2.5 million in net income.
Some SBA loan programs cater to the underserved markets. Their Pre-qualification program helps pre-qualify borrowers who aren't as likely to be approved to help them obtain a loan.
Many women business owners benefit from such a program. Those who are eligible must prepare a business plan and complete the loan application.
Once approved, you receive your pre-qualification letter from the SBA. Since the SBA is providing the business with a guarantee, banks are more likely to approve the loan.
SBA loan programs include one where there's a collection of revolving and nonrevolving lines of credit. They're called CAPLines and they're perfect for businesses needing working capital on a short-term or cyclical basis.
The CAPLines program acts similarly to a credit card. You carry a balance and can either add to the balance or pay it down, depending on the needs of your business.
If you choose a nonrevolving line of credit, you borrow a set amount and then pay it off over a set period of time.
These loans are guaranteed up to $5 million and there are four loan and line-of-credit programs operating within the CAPLines program.
There's a seasonal line of credit. It's designed to help businesses out during their peak seasons. It provides them with much-needed money to handle increases in their inventory, accounts receivable, and labor costs.
Contract lines of credit are used to finance any labor and materials needed when carrying out contracts.
The Builders line of credit is perfect for small contractors and developers. It provides them with financing they need to either construct or rehabilitate a residential or commercial property being sold to a third party.
The working capital line of credit is a revolving line of credit up to $5 million. It's used to provide short-term working capital. Most businesses use this line of credit to provide credit to their own customers. They might also only have inventory as their major asset and require additional funds.
Not every business needs a lot of money to help them out. Luckily, there are SBA loan programs for nearly every type of business need. The MicroLoan Program helps small businesses obtain loans up to $50,000.
You can use these loans to buy machinery and equipment, inventory, supplies, furniture and fixtures, and even for working capital. What you can't use this loan for is to pay off your existing debts or purchase real estate.
It's one of the more unique SBA loan programs offered because it helps borrowers who don't tend to meet the credit standards most traditional lenders are looking for them to meet.
To apply for this loan, you may be required to complete business-skills training prior to being considered. The maximum term is six years. Interest rates vary.
SBA loan programs are equal opportunity programs. They realize not everyone has the same advantages in business.
To help those entrepreneurs succeed, the 8(a) program allows certified socially and economically disadvantaged companies to enter the federal procurement market.
It's regarded as a starter program for minority-owned businesses, so they must leave the program after nine years.
Those participating are also eligible for the 7(a) and Pre-qualification Programs. To qualify, you must prove a net worth of less than $250,00 with assets under $4 million.
Two years worth of tax returns must be supplied and at least 51% of the business must be owned by the applicant.
The 504 loan program is similar to the 7(a) program in that it's only eligible to small business owners with less than $7 million in tangible net worth and less than $2.5 million in net income.
Out of all the SBA loan programs, this one is intended to supply funds for asset purchases. Usually, that means land or equipment.
Normally the asset purchase is funded by a loan from a bank or other lender. There's also a second loan from a certified development company (CDC). The CDC is funded with an SBA guarantee that's up to 40% of the value of the asset.
Generally, that means a loan of up to $1 million. There also needs to be a contribution of 10% from the equity of the borrower.
It's structured that way to reduce the primary lender's risk (usually the bank) by relying on the CDC and SBA to take on the risk.
It's worth noting that these funds can't be used for working capital or inventory. It also can't be used for repaying debts or refinancing. For that reason, the program often excludes most service businesses looking to purchase land or equipment.
Like most bank loans, one condition of an SBA loan where you are not the direct borrower is that you must sign a personal guarantee. This means that you agree to personally pay for any deficiency in the event of default. Moreover, in certain situations, the SBA loan will require you to pledge your personal residence or other real estate as collateral for the loan. As such, if there is an SBA loan default, your house or other real estate could be sold at foreclosure to pay for the deficiency on the SBA loan default.
Unfortunately, sometimes the unexpected occurs and you find you're having difficulty repaying back your loan. Maybe you've already even defaulted and you're not sure what your next step is
It's time to hire an attorney. We'll provide you with real solutions. Click here 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.
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.
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.
The clients are personally guaranteed an SBA 7(a) loan. The SBA referred the debt to the Department of Treasury, which was seeking payment of $487,981 from our clients. We initially filed a Cross-Servicing Dispute, which was denied. As a result, we filed an Appeals Petition with the SBA Office of Hearings and Appeals asserting legal defenses and supporting evidence uncovered during the discovery and investigation phase of our services. Ultimately, the SBA settled the debt for $25,000 - saving our clients approximately $462,981.
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