5 Factors to Consider in an SBA Offer in Compromise
Offer in Compromise is a way for a small business to close when it is clear that they won't be able to pay their debts, but here are 5 factors to consider
Small business owners acquire commercial loans to start their companies. These opportunities allow them to gain financing to purchase a location and merchandise needed to operate the business. When the owner can no longer manage this financial obligation, they need an SBA Offer in Compromise to avoid the negative impact of a default.
Essentially, an SBA offer in compromise is a settlement offer. The small business owner submits an application with their lender to acquire approval. The lender evaluates the financial circumstances of the business owner and identifies a value that is fair and reasonable. This value is based on a percentage of the total value owed to the lender. Upon acceptance of this value, the business owner submits the payment as specified.
An SBA loan default is the primary reason for seeking an offer in compromise. Once the loan is in default, the lender has the legal right to file a claim against the identified collateral. The collateral could include the building, machinery, and any inventory that was financed through the loan. If the borrower doesn't take action, the lender could seize the collateral and generate a major financial loss for the borrower. An SBA loan foreclosure is included in the available legal actions.
The borrower must hire an attorney to communicate with their lender. When hiring an attorney, the borrower must provide the SBA demand letter. The attorney discusses a possible settlement offer with the lender. In most cases, the lender will accept a lower value in order to settle the debt. Once it enters default, the lender may acquire a portion of the funds through an insurance settlement. When this is the case, it gives the borrower leverage over their case.
Small business owners need commercial loans to open their companies. These financing opportunities are available to any party that has a lucrative business venture. However, the mismanagement of their finances could lead to a default. When this happens, foreclosure is an almost certainty. Small business owners who need a settlement offer or to participate in a Tax Offset Program should contact an attorney now.
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 received the SBA's Official 60-Day Notice for a loan that was obtained by her small business in 2001. The SBA loan went into default in 2004 but after hearing nothing from the SBA lender or the SBA for 20 years, out of the blue, she received the SBA's collection due process notice which provided her with only one of four options: (1) repay the entire accelerated balance immediately; (2) negotiate a repayment arrangement; (3) challenge the legal enforceability of the debt with evidence; or (4) request an OHA hearing before a U.S. Administrative Law Judge.
Client hired the Firm to represent her with only 13 days left before the expiration deadline to respond to the SBA's Official 60-Day Notice. The Firm attorneys immediately researched the SBA's Official loan database to obtain information regarding the 7(a) loan. Thereafter, the Firm attorneys conducted legal research and asserted certain affirmative defenses challenging the legal enforceability of the debt. A written response was timely filed to the 60-Day Notice with the SBA subsequently agreeing with the client's affirmative defenses and legal arguments. As a result, the SBA rendered a decision immediately terminating collection of the debt against the client's alleged personal guarantee liability saving her $50,000.
Clients personally guaranteed an SBA 7(a) loan that was referred to the Department of Treasury for collection. Treasury claimed our clients owed over $220,000 once it added its statutory collection fees and interest. We were able to negotiate a significant reduction of the total claimed amount from $220,000 to $119,000, saving the clients over $100,000 by arguing for a waiver of the statutory 28%-30% administrative fees and costs.
Our firm successfully assisted a client in closing an SBA Disaster Loan tied to a COVID-19 Economic Injury Disaster Loan (EIDL). The borrower obtained an EIDL loan of $153,800, but due to the prolonged economic impact of the COVID-19 pandemic, the business was unable to recover and ultimately closed.
As part of the business closure review and audit, we worked closely with the SBA to negotiate a resolution. The borrower was required to pay only $1,625 to release the remaining collateral, effectively closing the matter without further financial liability for the owner/officer.
This case highlights the importance of strategic negotiations when dealing with SBA settlements, particularly for businesses that have shut down due to unforeseen economic challenges. If you or your business are struggling with SBA loan debt, we focus on SBA Offer in Compromise (SBA OIC) solutions to help settle outstanding obligations efficiently.
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