SBA Ability-to-Pay Analysis: Proving Your Financial Hardship for Settlement
Understand SBA ability-to-pay analysis for debt settlement. Learn to document financial hardship and craft a compelling SBA hardship letter.
With the meltdown of SVB and Signature banks and other banks teetering it may affect SBA loans in the future and current loans as well.
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With the meltdown of SVB and Signature banks and other banks teetering it may affect SBA loans in the future and current loans as well.
The current banking crisis can have a significant impact on Small Business Administration (SBA) loans. The SBA is a government agency that provides support to small businesses by offering loans, loan guarantees, and other financial assistance programs. However, SBA loans are typically provided by private banks and other financial institutions that partner with the agency.
If these banks are struggling due to the banking crisis, they may become more hesitant to lend money, including SBA loans, to small businesses. This can result in a reduction in the availability of SBA loans, making it more difficult for small businesses to access the capital they need to survive and grow.
Additionally, the economic downturn caused by the banking crisis may cause some small businesses to default on their existing SBA loans.This could lead to a decrease in the SBA's loan portfolio and an increase in the agency's loan guarantee payments to banks.
Overall, the banking crisis can have a negative impact on the availability and affordability of SBA loans, making it more challenging for small businesses to obtain the funding they need to succeed.
Higher interest rates may have several effects on SmallBusiness Administration (SBA) loans:
· Increase in borrowing costs: Higher interest rates mean that borrowers will have to pay more to borrow money, which will increase the overall cost of SBA loans. This may discourage some businesses from taking out loans, or it may reduce the amount they borrow.
· Decrease in loan demand: As the cost of borrowing increases, demand for loans may decrease. This may result in fewer businesses seeking SBA loans, which could lead to a reduction in the number of loans issued.
· Increase in loan default rates: Higher interest rates may make it more difficult for businesses to repay their loans. As a result, default rates may increase, which could lead to greater losses for lenders and the SBA.
· Changes in loan terms: Higher interest rates may prompt lenders to change the terms of SBA loans, such as by requiring higher collateral or increasing the size of down payments seeking the maximum protection under SBA rules. This could make it more difficult for some businesses to qualify for loans.
Overall, higher interest rates can make it more difficult and expensive for businesses to obtain SBA loans, which could have a negative impact on small business growth and economic activity.
Has There Been an Increase in The Rate of Defaults On SBALoans?
The Small Business Administration (SBA) regularly releases data on the performance of its loan programs.
According to the SBA's FY 2021 Annual Report, the overall default rate for SBA loans in FY 2021 was 2.24%, which is down from 2.45% in FY2020. However, it's important to note that this data only goes up until the end of the fiscal year, which is September 30, 2021.
It's possible that the default rate may have increased sincet hen due to ongoing economic conditions and the impact of the COVID-19 pandemic on small businesses. However, without more recent data, it's difficult to say for sure.
If you have defaulted on your SBA loan, contact Protect LawGroup today.
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’s small business obtained an SBA 7(a) loan for $150,000. He and his wife signed personal guarantees and pledged their home as collateral. The SBA loan went into default, the term or maturity date was accelerated and demand for payment of the entire amount claimed was made. The SBA lender’s note gave it the right to adjust the default interest rate from 7.25% to 18% per annum. The business filed for Chapter 11 bankruptcy but was dismissed after 3 years due to its inability to continue with payments under the plan. Clients wanted to file for Chapter 7 bankruptcy, which would have been a mistake as their home had significant equity to repay the SBA loan balance in full as the Trustee would likely seize and sell the home to repay the secured and unsecured creditors. However, the SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection to the SBA. Clients then received the SBA Official 60-Day Notice and hired the Firm to respond to it and negotiate on their behalf. Clients disputed the SBA’s alleged balance of $148,000, as several payments made to the SBA lender during the Chapter 11 reorganization were not accounted for. To challenge the SBA’s claimed debt balance, the Firm Attorneys initiated expedited discovery to obtain government records. SBA records disclosed the true amount owed was about $97,000. Moreover, because the Clients’ home had significant equity, they were not eligible for an Offer in Compromise or an immediate Release of Lien for Consideration, despite being incorrectly advised by non-attorney consulting companies that they were. Instead, our Firm Attorneys recommended a Workout of $97,000 spread over a lengthy term and a waiver of the applicable interest rate making the monthly payment affordable. After back and forth negotiations, SBA approved the Workout proposal, thereby saving the home from imminent foreclosure and reducing the Clients' liability by nearly $81,000 in incorrect principal balance, accrued interest, and statutory collection fees.
Client's small business obtained an SBA COVID EIDL for $301,000 pledging collateral by executing the Note, Unconditional Guarantee and Security Agreement. The business defaulted on the loan and the SBA CESC called the Note and Guarantee, accelerated the principal balance due, accrued interest and retracted the 30-year term schedule.
The loan was transferred to the Treasury's Bureau of Fiscal Service which resulted in the statutory addition of $90,000+ in administrative fees, costs, penalties and interest with the total debt now at $391.000+. Treasury also initiated a Treasury Offset Program (TOP) levy against the client's federal contractor payments for the full amount each month - intercepting all of its revenue and pushing the business to the brink of bankruptcy.
The Firm was hired to investigate and find an alternate solution to the bankruptcy option. After submitting formal production requests for all government records, it was discovered that the SBA failed to send the required Official 60-Day Pre-Referral Notice to the borrower and guarantor prior to referring the debt to Treasury. This procedural due process violation served as the basis to submit a Cross-Servicing Dispute to recall the debt from Treasury back to the SBA and to negotiate a reinstatement of the original 30-year maturity date, a modified workout, cessation of the TOP levy against the federal contractor payments and removal of the $90,000+ Treasury-based collection fees, interest and penalties.
Our firm successfully resolved an SBA 7(a) loan default in the amount of $140,000 on behalf of a husband-and-wife guarantor pair. The business had closed following a prolonged decline in revenue, leaving the borrowers personally liable for the remaining balance.
After conducting a comprehensive financial analysis and preparing a detailed SBA Offer in Compromise (SBA OIC) package, we negotiated directly with the SBA and the lender to achieve a settlement for $70,000 — just 50% of the outstanding balance. This settlement released the borrowers from further personal liability and allowed them to move forward without the threat of enforced collection.
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