WILL EXPANDED SBA EXPOSURE TO START UPS CAUSE MORE SBA LOAN DEFAULTS?
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.
We help people who need to avoid SBA loan default by teaching them about SBA offer in compromise and about various SBA loan problems such SBA Personal Guarantees
Book a Consultation CallAs we reported before on a previous blog entry, on January 1, 2014, SOP 50 10 5(F) became effective. This SBA Standard Operating Procedure (SOP) significantly alters the collateral requirements for SBA loans with regard to the types of assets that principals of borrowers must now pledge or mortgage.
Under this new SOP, principals are only required to pledge their personally owned real estate if their loan is not otherwise fully secured. In addition, there is no longer any requirement that principals pledge their publicly traded securities or other non-real estate assets.
As a practical matter, when combined with the proposed repeal of the resources test, this means that individuals and entities with substantial personal wealth may now serve as personal guarantors on SBA loans, and SBA lenders may be in a position to pursue and collect significant unsecured assets when litigating against those guarantors. Simply put, personal guarantors will have more at stake, and they will have the resources needed to secure litigation defense counsel, protect and defend their assets and possibly assert lender liability claims against their lender or bank.
Under SOP 50 10 5(F), lenders will, for the first time, have the option to use their own customized SBA personal guarantee agreements instead of using SBA Form 148 (or Form 148L), as long as their personal guarantee agreements are “equivalent” to the terms found in the SBA’s Forms.
This means that SBA lenders may be able to include clauses and terms in their personal guarantee agreements that were not previously included in the SBA’s standard forms.
However, as defense counsel for many personal guarantors of defaulted SBA Loans, it should be advised that SBA lenders should seriously reconsider taking advantage of this opportunity to craft their own personal guarantee agreements with clauses or provisions that are entirely favorable to to them at the expense of the personal guarantor as they may easily find themselves having to defend their personal guarantee agreements based on arguments of typical affirmative defenses, such as, unfairness, bad faith, breach of covenant of good faith and fair dealing, contract of adhesion, unconscionability, and/or misrepresentation.
As noted above, the anticipated changes in terms regarding personal guarantees in light of SOP 50 10 5(F) will likely become more important as lenders begin enforcing their SBA personal guarantee agreements against individuals who have sufficient personal resources to retain defense counsel and defend the claims of the lenders.
The landscape between SBA personal guarantors of defaulted SBA loans and purportedly aggrieved lenders or banks has changed dramatically. Both parties should be apprised of this new frontier and get ready to rumble.
The attorneys in our office want to help you figure out your SBA or DOT situation. No matter how difficult your circumstances may seem, the right lawyer can assist you. We understand that you probably have questions regarding a wide range of issues, including how to respond to an SBA or DOT demand letter, what SBA loan foreclosure actually entails, and what a tax offset program is. One of our specialists can tell you about all of these topics and more. We urge you to read our blog to learn more about subjects that are confusing to you and to contact us right away if you have specific questions. We look forward to working with you during this period of your life.
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 resolved an SBA COVID-19 Economic Injury Disaster Loan (EIDL) in the original amount of $150,000 for a Florida-based borrower. The loan, issued on June 4, 2020, was secured by business assets and potential personal liability through the SBA's Security Agreement.
Following the permanent closure of the business, we guided the client through the SBA’s Business Closure Review process and prepared a comprehensive collateral analysis. We negotiated directly with the SBA, obtaining a full release of the business collateral for $2,910 — satisfying the borrower’s obligations under the Security Agreement and eliminating any further enforcement risk against the pledged assets.
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’s ureau 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.
Clients obtained an SBA 7(a) loan for $324,000 to buy a small business and its facility. The business and real estate had an appraisal value of $318,000 at the time of purchase. The business ultimately failed but the participating lender abandoned the business equipment and real estate collateral even though it had valid security liens. As a result, the lender recouped nearly nothing from the pledged collateral, leaving the business owners liable for the deficiency balance. The SBA paid the lender the 7(a) guaranty money and was assigned ownership of the debt, including the right to collect. However, the clients never received the SBA Official 60-Day Notice and were denied the opportunity to negotiate an Offer in Compromise (OIC) or a Workout directly with the SBA before being transferred to Treasury's Bureau of Fiscal Service, which added an additional $80,000 in collection fees. Treasury garnished and offset the clients' wages, federal salary and social security benefits. When the clients tried to negotiate with Treasury by themselves, they were offered an unaffordable repayment plan which would have caused severe financial hardship. Clients subsequently hired the Firm to litigate an Appeals Petition before the SBA Office & Hearings Appeals (OHA) challenging the legal enforceability and amount of the debt. The Firm successfully negotiated a term OIC that was approved by the SBA Office of General Counsel, saving the clients approximately $205,000.
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