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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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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.

$488,000 SBA 7A LOAN - SBA OHA LITIGATION

$488,000 SBA 7A LOAN - SBA OHA LITIGATION

The clients are personally guaranteed an SBA 7(a) loan.  The SBA referred the debt to the Department of Treasury, which was seeking payment of $487,981 from our clients.  We initially filed a Cross-Servicing Dispute, which was denied.  As a result, we filed an Appeals Petition with the SBA Office of Hearings and Appeals asserting legal defenses and supporting evidence uncovered during the discovery and investigation phase of our services.  Ultimately, the SBA settled the debt for $25,000 - saving our clients approximately $462,981.

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

$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.

$150,000 SBA 7A LOAN - NEGOTIATED STRUCTURED WORKOUT AGREEMENT

$150,000 SBA 7A LOAN - NEGOTIATED STRUCTURED WORKOUT AGREEMENT

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.

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