SBA Loan Default: How the Guarantee Works with 7a and Express Loans
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.
Dealing with an SBA OIC case can be hard on anyone. This is why you should allow one of our lawyers to settle SBA debt on your behalf. Talk to us about your SBA loan default situation.
Book a Consultation CallThe Small Business Administration's Office of Inspector General have issued several reports criticizing SBA oversight of banks and lenders and calling for tighter controls on their activities. These reports come as the OIG is aggressively working with the Department of Justice and US Attorney’s Office to pursue civil and criminal cases against lenders, their employees, and their brokers. In the past, SBA OIG referrals have resulted in 96 indictments, 71 convictions, and $25 million in recoveries and fines
In its most recent report, the OIG identified deficiencies "so egregious" that it called for a full denial of the SBA loan guarantee on six loans originated by six different lenders. The "material lender noncompliance" alleged by the OIG included inadequate evidence of equity injection, inadequate evidence of IRS tax verifications, inadequate appraisals, and failure to disclose environmentally contaminated property – all of which occurred during the loan origination process. Because of these errors, the OIG called on the SBA to seek recovery of the full guarantee amount plus interest, despite the fact that the SBA conducted two comprehensive reviews of these loans before charging off their outstanding balances. The SBA is seeking responses from the cited lenders, but has noted that three of the repurchases occurred over six years ago, meaning that the statute of limitations may bar SBA recovery.
The OIG report follows two other audits criticizing SBA oversight of five other lenders:
In other audits, the OIG has claimed that the SBA failed to address performance and compliance issues or protect government funds once deficiencies were identified, and called on the SBA to develop guidelines under which it will suspend or revoke a lender's status in the Preferred Lender Program. The OIG also argued that the SBA has made tens of millions of dollars in erroneous payments to lenders that did not provide the information necessary to prove that they had originated and serviced loans in compliance with SBA regulations
Legal Developments: Potential Adverse Consequences for Failure to Identify and Correct Risks Common to SBA Lending
In this climate of enhanced oversight, there is a wide variety of administrative, civil and criminal tools available to the government for pursuing claims against lenders, their employees and their brokers for allegedly improper lending practices:
These legal risks are particularly profound for lenders participating in the SBA's Preferred Lenders Program, under which the SBA delegates loan decisions regarding eligibility to the lender. The vast majority of credit determinations are left to PLP lenders, and the SBA conducts only a cursory review of a limited set of documents before approving the loan guarantee. After its payment of a guarantee on a defaulted loan, the SBA then conducts a full-fledged review of the lender's loan documents to determine whether deficiencies in underwriting, closing, or servicing contributed to the failure of loan.
What Can SBA Borrowers and Personal Guarantors Do?
If you have been deemed responsible for an SBA debt – either as a direct Borrower, Obligor and/or Personal Guarantor, you need to hire qualified counsel and practitioners who can review your case, including your original loan documents, payments, performance, etc. to find out if any regulatory deficiencies or fraud may exist.
Some of these potential issues are frequently discovered in post-SBA guarantee payment forensic audits by the Government. However, the main problem for SBA debtors is that several years have already passed before the Government could even consider conducting an audit of the loan portfolios where SBA guarantees were paid out to the lenders and banks that transacted the original loan. In the meantime, debtors who have been held liable on the SBA debt (either because of the original personal guarantee signed during the origination of the SBA loan) have been forced to pay the Government back – when, if they would have been more proactive in resolving this liability – could have avoided the situation by pointing out the regulatory mishaps and fraud by the respective lenders and bank – and petition the Government to seek recovery of the SBA Guaranty monies that had been paid out to the culpable parties.
We can help by conducting a comprehensive SBA loan audit to determine if any regulatory deficiencies, fraud or other SOP violations may have occurred. Once the investigation and audit has been performed and we are able to find regulatory mishaps, we would then petition the SBA or the DOT (whichever federal agency has the debt) to terminate any and all collection action against you based on the findings.
The goal, if possible, would be to resolve the SBA loan default by showing that the SBA debt against you should not be "legally enforceable" and that the Government should seek recovery from the offending lender or bank that originated the loan and fraudulently convinced the Government to honor or purchase the SBA Guaranty or Debenture.
Needless to say, this is a viable option in defending against SBA debts, Treasury Dept. collection action or DOJ collateral liquidation and/or litigation.
If you are struggling with circumstances that involve SBA loan default or Treasury collection, you deserve professional help! Our attorneys know how to win SBA & DOT cases. If you contact us, we will help you settle SBA debt once and for all.
After you schedule an appointment, you confer with a dedicated SBA Workout Attorney & DOT Practitioner who can help you through your administrative legal battle. After your claim is resolved, you never again have to worry about your SBA loan default problem haunting you. Our team of lawyers has assisted many clients through the years. Now it is your turn!You truly cansettle SBA debt for good!
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' 7(a) loan was referred to Treasury's Bureau of Fiscal Service for enforced collection in 2015. They not only personally guaranteed the loan, but also pledged their primary residence as additional collateral. One of the clients filed for Chapter 7 bankruptcy thinking that it would discharge the SBA 7(a) lien encumbering their home. They later discovered that they were mistakenly advised. The Firm was subsequently hired to review their case and defend against a series of collection actions. Eventually, we were able to negotiate a structured workout for $180,000 directly with the SBA, saving them approximately $250,000 (by reducing the default interest rate and removing Treasury's substantial collection fees) and from possible foreclosure.
Clients executed personal and corporate guarantees for an SBA 7(a) loan from a Preferred Lender Provider (PLP). The borrower corporation defaulted on the loan exposing all collateral pledged by the Clients. The SBA subsequently acquired the loan balance from the PLP, including the right to collect against all guarantors. The SBA sent the Official Pre-Referral Notice to the guarantors giving them sixty (60) days to either pay the outstanding balance in full, negotiate a Repayment (Offer in Compromise (OIC) or Structured Workout (SW)), challenge their alleged guarantor liability or file a Request for Hearing (Appeals Petition) with the SBA Office of Hearings & Appeals.
Because the Clients were not financially eligible for an OIC, they opted for Structured Workout negotiations directly with the SBA before the debt was transferred to the Bureau of Fiscal Service, a division of the U.S. Department of Treasury for enforced collection.
The Firm was hired to negotiate a global Workout Agreement directly with the SBA to resolve the personal and corporate guarantees. After submitting the Structured Workout proposal, the assigned SBA Loan Specialist approved the requested terms in under ten (10) days without any lengthy back and forth negotiations.
The favorable terms of the Workout included an extended maturity at an affordable principal amount, along with a significantly reduced interest rate saving the Clients approximately $181,000 in administrative fees, penalties and interest (contract interest rate and Current Value of Funds Rate (CVFR)) as authorized by 31 U.S.C. § 3717(e) had the SBA loan been transferred to BFS.