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.

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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 correspondence, loan documents, prior 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).

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