Small business owners face unprecedented times in this covid-19 economy. Many businesses have 2 major expenses to service every month: (1) SBA loan and (2) Commercial lease.
A material default occurs when the small business is not able to pay the agreed-upon monthly principal and interest payment. After several missed payments (typically 60-90 days), the SBA participating lender (if it is 7(a) loan) or Certified Development Corporation (if it is a 504 loan), will come knocking and contact you asking “where’s the monthly payment?”
Many small business owners will respond to their lender and request some time or try to modify their payment schedules. But some will just bury their head in the sand and avoid responding to their bank. It is better to respond to your bank as opposed to ignoring the problem. What you don’t want is for your SBA loan to be placed in “liquidation” status and transferred to the bank’s Special Assets Department (SAD).
In the covid-19 economy, most SBA 7(a) lenders offer loss mitigation relief measures. Some lenders offer internal deferment. Deferment typically involves deferring or postponing the monthly principal payment due and allowing small businesses to pay interest only. The postponed monthly principal payments are then tacked onto the end of the original amortized payment schedule. Other lenders place the loan in the SBA CARES Act’s Small Business Debt Relief Program. Here, the SBA makes the principal and interest payments to the SBA lender on behalf of the business for six (6) consecutive months.
If you are placed into a Deferment or the Small Business Debt Relief Program, this is your opportunity to pivot your business and come up with creative ideas to generate revenue while your payments on the SBA loan are temporarily postponed. Rest assured, however, that your bank will keep you on a short leash and may require monthly updates.
Some banks may not offer Deferment or placement into the Small Business Debt Relief Program. If your bank is not offering these loss mitigation measures, you need to find out why. It could be because you don’t qualify for these programs or that the bank simply wants to cut its losses and liquidate collateral that has been voluntarily pledged as security for the SBA loan. This collateral could be commercial real estate, residential real estate, bank or investment accounts, certificate of deposits or business, property and equipment.
If confronted with a situation where the bank will not assist you, you should consult with an experienced SBA attorney to discuss your options and come up with a game plan to counter the bank’s actions. Some options may include negotiating with the SBA lender directly, seeking assistance from the SBA and requesting that it mediate the impasse between you and the SBA lender or exploring arbitration or litigation based on lender liability theories and allegations.
Don’t try to resolve SBA loan default issues by yourself. Speak to an SBA Attorney with Protect Law Group.
Protect Law Group has proven, nationwide experience resolving SBA loan problems.
Owe more than $30,000? Contact Protect Law Group for an SBA loan case evaluation or call us toll-free at 1-888-756-9969.
We can analyze your SBA loan problems and advise you on potential solutions.
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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
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.
Clients' 7(a) loan was referred to Treasury's Bureau of Fiscal Service for enforced collection in 2015. They not only personally guaranteed the loan, but also pledged their primary residence as additional collateral. One of the clients filed for Chapter 7 bankruptcy thinking that it would discharge the SBA 7(a) lien encumbering their home. They later discovered that they were mistakenly advised. The Firm was subsequently hired to review their case and defend against a series of collection actions. Eventually, we were able to negotiate a structured workout for $180,000 directly with the SBA, saving them approximately $250,000 (by reducing the default interest rate and removing Treasury's substantial collection fees) and from possible foreclosure.
Client’s small business obtained an SBA 7(a) loan for $750,000. She and her husband signed personal guarantees exposing all of their non-exempt income and assets. With just 18 months left on the maturity date and payment on the remaining balance, the Great Recession of 2008 hit, which ultimately caused the business to fail and default on the loan terms. The 7(a) lender accelerated and sent a demand for full payment of the remaining loan balance. The SBA lender’s note allowed for a default interest rate of about 7% per year. In response to the lender's aggressive collection action, Client's husband filed for Chapter 7 bankruptcy in an attempt to protect against their personal assets. However, his bankruptcy discharge did not relieve the Client's personal guarantee liability for the SBA debt. The SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection against the Client to the SBA. The Client then received the SBA Official 60-Day Notice. After conducting a Case Evaluation with her, she then hired the Firm to respond and negotiate on her behalf with just 34 days left before the impending referral to Treasury. The Client wanted to dispute the SBA’s alleged debt balance as stated in the 60-Day Notice by claiming the 7(a) lender failed to liquidate business collateral in a commercially reasonable manner - which if done properly - proceeds would have paid back the entire debt balance. However, due to time constraints, waivers contained in the SBA loan instruments, including the fact the Client was not able to inspect the SBA's records for investigation purposes before the remaining deadline, Client agreed to submit a Structured Workout for the alleged balance in response to the Official 60-Day Notice as she was not eligible for an Offer in Compromise (OIC) because of equity in non-exempt income and assets. After back and forth negotiations, the SBA Loan Specialist approved the Workout proposal, reducing the Client's purported liability by nearly $142,142.27 in accrued interest, and statutory collection fees. Without the Firm's intervention and subsequent approval of the Workout proposal, the Client's debt amount (with accrued interest, Treasury's statutory collection fee and Treasury's interest based on the Current Value of Funds Rate (CVFR) would have been nearly $291,030.
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.
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