SBA Offers in Compromise (OIC)
If you have had trouble with small business finances, then you may have heard about offer in compromise, or OIC. Here is everything you need to know.
One viable way to fund your startup is to get a loan from the SBA. Find the SBA loan requirements in an easy-to-follow format here.
Book a Consultation CallHow do you fund a startup in the middle of a global pandemic?
With a loan from the Small Business Administration, also known as the SBA!
Funding your scrappy start-up is no walk in park, even in normal times. Luckily, the SBA can help get your dream off the ground. If you are wondering about SBA loan requirements, you're in the right place!
However, you can find the SBA loan requirements in an easy-to-follow format here.
SBA Loan Requirements
If you weren't already aware, an SBA loan is not a loan directly from the SBA. It may be more accurate to call these loans SBA-backed loans. An SBA-approved bank will loan you the money, but the SBA guarantees the loans.
An SBA loan guarantee is no small matter. An SBA is a department within the U.S. government. Translation: an SBA guarantee is a government guarantee.
This fact alone allows the bank to offer you a significantly lower interest rate than most other conventional loans. SBA-backed loan rates can range from 3%-6% for a typical 7a loan, SBA's most popular.
Whichever type of SBA loan you choose, it's important to understand the basic pillars of loan eligibility. While each loan type will have specific additional qualifications, all SBA loans require the following:
Traditionally, you had to be a for-profit business to qualify for SBA funding. However, the pandemic forced changes within the SBA as well. Thanks to the CARES Act, non-profits were able to qualify for SBA help as well.
Unfortunately, the pandemic exploded the SBA requirements. The SBA lending has expanded in many ways, from loosening credit requirements to tightening interest rates to extending loan amounts to non-profits.
However, the fact remains, even though non-profits can now qualify, SBA loans continue to be reserved for business organizations, not private individuals.
Just because you are a U.S. citizen doesn't automatically entitle you to an SBA loan. Your business must be physically located within the United States.
If you are a U.S. resident living in New Guinea, you probably won't qualify for an SBA loan if you want to fund your online business.
So, to all the would-be dropshipping moguls wanting to make a fortune from their beachside laptop station: sorry, you're gonna have to find another way to fund your budding empire!
To a certain degree, every lender is making a bet on a borrower. They bet that you'll pay back the loan under the agreed-to conditions. To secure their bet, lenders will often need to see some type of collateral.
An SBA loan is no different. One way the government secures its bet on you is to have you prove you've invested equity. Essentially, they want to see some "skin in the game" on your end.
And it's not just any willy-nilly amount. There are specific equity requirements when it comes to an SBA loan application. Most of the specifications depend on whether you are a new or existing business.
For a new business, the SBA wants to see $1 for each $3 borrowed. This equity can be in the form of cash you've invested (so keep records!). Proof of equity can also come from business assets you've acquired for your business thus far, like equipment or commercial real estate.
As such, if you're looking to borrow $30,000 in the form of the ever-popular 7a loan program, be prepared to show that you've got $10,000 of provable equity invested.
For an existing business, equity requirements are more stringent. The SBA wants to see that you've gone into debt for your business. The requirement is $1 of debt to every $4 you're seeking to borrow.
So if you're seeking a $50,000 SBA loan, guess what? You'll need to show $12,500 in business debt that you've already invested.
Why the equity requirement? The SBA does not want someone who hasn't already invested in their business. It makes sense, right. If you woke up one morning and decide you want $50,000 from the SBA for a pipe dream, there's a good chance you won't pay it back!
Despite the measures you take to run a profitable business using SBA funds, you may still not succeed. With businesses folding every day because of the pandemic, you wouldn't be alone.
If you find yourself on the brink of bankruptcy, you will need help negotiating your SBA loan. The SBA attorneys at Protect Law Group can help you with all aspects of outstanding SBA loans. From repayment to loan deferment, we'll help you explore all of your options.
When you fill out your SBA loan application, they will want to see that you've sought out other financing options. More accurately, they want to see that you've exhausted your other options!
Understand, a loan is a type of liability, and, as with all liabilities, those who are taking a risk like to see that liability spread around a bit.
Moreover, other lenders involved in your business financing is also a kind of "vote" for your venture. Therefore, others have vouched for your dream and, most importantly, your creditworthiness. All of this makes you a safer bet for the SBA lenders.
The above four requirements are the major foundations for an SBA loan. To that end, from the 7a loan to SBA microloans, think of these requirements as prerequisites for all SBA funding.
All that said, your credit score matters. A lot. For instance, your business may be far along enough to have its own credit score. But the chances are, you'll be using your own personal credit score on your SBA loan application.
So if you're looking ahead at an SBA loan soon, start beefing up your credit. Of course, the SBA will see your own creditworthiness as a sign of your ability to manage your business' finances as well.
Even though you've met the SBA loan requirements, you may have secured a loan you can't repay. If you find yourself with SBA loan issues, contact us to see how we can advocate for you.
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 SBA 504 loan balance of $375,000. Debt had been cross-referred to Treasury at the time we got involved with the case. We successfully had debt recalled to the SBA where we then presented an SBA OIC that was accepted for $58,000.
Client personally guaranteed SBA 7(a) loan for $350,000. The small business failed but because of the personal guarantee liability, the client continued to pay the monthly principal & interest out-of-pocket draining his savings. Client hired a local attorney but quickly realized that he was not familiar with SBA-backed loans or their standard operating procedures. Our firm was subsequently hired after the client received the SBA's official 60-day notice. After back-and-forth negotiations, we were able to convince the SBA to reinstate the loan, retract the acceleration of the outstanding balance, modify the original terms, and approve a structured workout reducing the interest rate from 7.75% to 0% and extending the maturity date for a longer period to make the monthly payments affordable. In conclusion, not only we were able to help the client avoid litigation and bankruptcy, but we also save him approximately $227,945 over the term of the workout.
Client personally guaranteed SBA 7(a) loan for $150,000. COVID-19 caused the business to fail, and the loan went into default with a balance of $133,000. Client initially hired a non-attorney consultant to negotiate an OIC. The SBA summarily rejected the ineligible OIC and the debt was referred to Treasury’sBureau of Fiscal Service for enforced collection in the debt amount of $195,000. We were hired to intervene and initiated discovery for SBA and Fiscal Service records. We were able to recall the case from Fiscal Service back to the SBA. We then negotiated a structured workout with favorable terms that saves the client approximately $198,000 over the agreed-upon workout term by waiving contractual and statutory administrative fees, collection costs, penalties, and interest.
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