SBA Loan Default - Recoverable Fees
We help people who need to avoid an SBA loan default by advising them about the SBA offer in compromise and other SBA loan problems and their solutions.
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.
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.
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 client personally guaranteed an SBA 504 loan balance of $375,000. Debt had been cross-referred to the 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.
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