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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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$350,000 SBA 7A LOAN - NEGOTIATED STRUCTURED WORKOUT AGREEMENT

Client personally guaranteed SBA 7(a) loan for $350,000. The small business failed but because of the personal guarantee liability, the client continued to pay the monthly principal & interest out-of-pocket draining his savings. The client hired a local attorney but quickly realized that he was not familiar with SBA-backed loans or their standard operating procedures. Our firm was subsequently hired after the client received the SBA's official 60-day notice. After back-and-forth negotiations, we were able to convince the SBA to reinstate the loan, retract the acceleration of the outstanding balance, modify the original terms, and approve a structured workout reducing the interest rate from 7.75% to 0% and extending the maturity date for a longer period to make the monthly payments affordable. In conclusion, not only we were able to help the client avoid litigation and bankruptcy, but our SBA lawyers also saved him approximately $227,945 over the term of the workout.

$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.

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$58,000 SBA 7A LOAN - AWG HEARING DEFENSE

Client personally guaranteed SBA 7(a) loan balance of $58,000.  The client received a notice of Intent to initiate Administrative Wage Garnishment (AWG) Proceedings.  We represented the client at the hearing and successfully defeated the AWG Order based on several legal and equitable grounds.

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