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What To Do If The SBA Lender Or SBA Denies Your Request For Loan Mitigation Help Or Financial Hardship Accommodation

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What To Do If The SBA Lender Or SBA Denies Your Request For Loan Mitigation Help Or Financial Hardship Accommodation

When an SBA Lender or the SBA denies loss mitigation options (like forbearance, loan modification, hardship accommodation or deferral) to a small business experiencing temporary cash flow issues, potential actions and affirmative defenses can depend on the signed loan agreement, applicable law, and whether the lender is a private or government-backed institution.

Below are some potential causes of action, affirmative defenses or legal theories that might apply to your case:

1. Breach of Contract

  • Applicable  if: The SBA loan agreement or ancillary documents include provisions requiring the SBA lender to consider or offer loss mitigation, or if the SBA lender fails to honor agreed-upon terms.
  • Key Argument: SBA Lender and/or SBA failed to perform obligations, such as reviewing the small business in good faith for forbearance or restructuring.

2. Breach of the Implied Covenant of Good Faith and Fair Dealing

  • Applicable if: The SBA Lender and/or SBA acted arbitrarily or capriciously in denying mitigation without reasonable cause, especially if mitigation is customary under industry standards or course of dealing.
  • Key Argument: The SBA Lender and/or SBA unfairly deprived the borrower and/or guarantors of the benefits of the contract.

3. Promissory Estoppel

  • Applicable if: The SBA Lender and/or SBA made a promise (oral or written) to provide or consider mitigation, the small business relied on it to its detriment.
  • Key Argument: The small business took action or refrained from alternatives (e.g., seeking other financing) in reliance on the SBA lender’s and/or SBA's promise.

4. Negligent Misrepresentation

  • Applicable if: The SBA Lender and/or SBA made false representations about the availability of relief, modification criteria, or eligibility process.
  • Key Argument: Misstatements caused the small business to forego other viable solutions.

5. Fraud

  • Applicable  if: There was intentional deception by the SBA Lender and/or SBA regarding the availability of loss mitigation or inducement into further payments under false pretenses.

6. Unfair Business Practices / Violation of State UDAP Laws

  • Applicable if: The SBA Lender's and/or SBA's conduct is deceptive, oppressive, or unfair under federal or state law.
  • Example:In California, a claim under the Unfair Competition Law (UCL) (Bus. & Prof. Code § 17200).

7. Tortious Interference with Prospective Economic Advantage

  • Applicable if: The SBA Lender's and/or SBA's denial disrupts the small business's ability to secure contracts, investors, or other financing that were reasonably certain to occur.

Federal Causes of Action (in some contexts)

  • Administrative  Procedure Act (APA) – If the lender is a government agency or acting on behalf of one (e.g., SBA).
  • Violation  of CARES Act or PPP/EIDL rules – If the loan is federally backed  and subject to statutory mitigation or deferment guidelines.

Strategic Considerations

  • Review all correspondenceloan documentsprior forbearance or workout agreements, and any internal policies or governmental  guidelines the SBA Lender and/or SBA are subject to.
  • Assess whether the SBA Lender and/or SBA acted inconsistently with similar borrowers, obligors and/or guarantors (discriminatory or disparate treatment).
  • If applicable, check if the small business is a minority- or woman-owned  and whether disparate impact claims are viable under possible civil rights laws (if federally involved).

Why Hire Us to Help You with Your Treasury or SBA Debt Problems?

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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

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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

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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.

$1,500,000 SBA COVID-EIDL LOAN - SBA OHA LITIGATION

$1,500,000 SBA COVID-EIDL LOAN - SBA OHA LITIGATION

Small business and guarantors obtained an SBA COVID-EIDL loan for $1,000,000. Clients defaulted causing SBA to charge-off the loan, accelerate the balance and refer the debt to Treasury's Bureau of Fiscal Service for collection. Treasury added nearly $500,000 in collection fees totaling $1,500,000. Clients were served with the SBA's Official 60-Day Notice and exercised the Repayment option by applying for the SBA’s Hardship Accommodation Plan. However, their application was summarily rejected by the SBA without providing any meaningful reasons. Clients hired the Firm to represent them against the SBA, Treasury and a Private Collection Agency.  After securing government records through discovery, we filed an Appeals Petition with the SBA Office of Hearings & Appeals (OHA) court challenging the SBA's referral of the debt to Treasury. During litigation and before the OHA court issued a final Decision and Order, the Firm successfully negotiated a reinstatement and recall of the loan back to the SBA, a modification of the original repayment terms, termination of Treasury's enforced collection and removal of the statutory collection fees.

$140,000 SBA 7(a) LOAN – PERSONAL GUARANTY LIABILITY | NEGOTIATED 50% SETTLEMENT

$140,000 SBA 7(a) LOAN – PERSONAL GUARANTY LIABILITY | NEGOTIATED 50% SETTLEMENT

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.

$383,000 SBA 7A LOAN - NEGOTIATED RELEASE OF LIEN FOR CONSIDERATION

$383,000 SBA 7A LOAN - NEGOTIATED RELEASE OF LIEN FOR CONSIDERATION

Clients executed several trust deeds pledging seven (7) real estate properties and unconditional personal guarantees for an SBA 7(a) loan from the participating lender. The clients' small business failed and eventually defaulted on repayment of the loan exposing all collateral pledged by the clients. The SBA subsequently acquired the loan balance from the lender, including the right to liquidate  and collect all pledged collateral pursuant to the trust deed instruments.

The Firm was hired to negotiate separate release of lien proposals for all 7 real estate properties. In preparation for the work assignment, the Firm Attorneys initiated discovery  to secure records from the SBA and Treasury's Bureau of Fiscal Service. After reviewing the records and understanding the interplay between the lender and the SBA, the attorneys then prepared, submitted and negotiated the release of lien (ROL) for each of the 7 real estate properties for consideration.

After submitting the proposals, the assigned SBA Loan Specialists approved each ROL package - significantly reducing the total SBA debt claimed.

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