One of the consequences of a failing small business is SBA loan default. The owner ends up with the debt of the small business association (SBA) loan. There are a few avenues to take, once a SBA demand letter has been received. The first thing a failed business owner needs to do is hire a federally licensed SBA attorney and Treasury debt practitioner. That specialization means the attorney can handle a case once it has been referred to the Treasury. Non-legal entities cannot provide negotiation services from that point forward.
An SBA Offer in Compromise is one way to settle the debt without foreclosure or filing bankruptcy. A case evaluation by the attorney will determine if owners are eligible for this option. The Offer in Compromise (OIC) is available when a business has failed due to mismanagement of finances. The basic requirements are that the business is no longer operational, and assets have already been liquidated. A negotiation can reduce the debt by as much as eighty percent. Lenders prefer to settle for a one lump sum, but payments can be made in installments under certain circumstances.
Another avenue is a Tax Offset Program in which the lender seizes the tax returns of the failed business owner every year, until the balance of the loan is paid off. That seems extreme, but can save the owner from a SBA loan foreclosure. In a foreclosure, the lender seizes any property listed on the loan documentation. If the value of the property does not cover the debt, the borrower's home could be seized, if it was purchased with company funds. That is a substantial risk to to take.
Negotiations cannot begin until a letter is received, which is usually ninety days after the last loan payment was made. From that point, collection efforts will be fast and aggressive. Business assets, including bank accounts and property, can be seized immediately. It is wise not to wait that long to contact an attorney. Getting help as soon as the business fails allows time for the attorney to review the case, explain possible options, answer any questions, and let the owner know what to expect.
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 personally guaranteed an SBA 7(a) loan to help with a relative’s new business venture. After the business failed, Treasury was able to secure a recurring Treasury Offset Program (TOP) levy against his monthly Social Security Benefits based on the claim that he owed over $1.2 million dollars. We initially submitted a Cross-Servicing Dispute, but then, prepared and filed an Appeals Petition with the SBA Office of Hearings and Appeals (SBA OHA). As a result of our efforts, we were able to convince the SBA to not only terminate the claimed debt of $1.2 million dollars against our client (without him having to file bankruptcy) but also refund the past recurring amounts that were offset from his Social Security Benefits in connection with the TOP levy.
Clients obtained an SBA 7(a) loan for $324,000 to buy a small business and its facility. The business and real estate had an appraisal value of $318,000 at the time of purchase. The business ultimately failed but the participating lender abandoned the business equipment and real estate collateral even though it had valid security liens. As a result, the lender recouped nearly nothing from the pledged collateral, leaving the business owners liable for the deficiency balance. The SBA paid the lender the 7(a) guaranty money and was assigned ownership of the debt, including the right to collect. However, the clients never received the SBA Official 60-Day Notice and were denied the opportunity to negotiate an Offer in Compromise (OIC) or a Workout directly with the SBA before being transferred to Treasury's Bureau of Fiscal Service, which added an additional $80,000 in collection fees. Treasury garnished and offset the clients' wages, federal salary and social security benefits. When the clients tried to negotiate with Treasury by themselves, they were offered an unaffordable repayment plan which would have caused severe financial hardship. Clients subsequently hired the Firm to litigate an Appeals Petition before the SBA Office & Hearings Appeals (OHA) challenging the legal enforceability and amount of the debt. The Firm successfully negotiated a term OIC that was approved by the SBA Office of General Counsel, saving the clients approximately $205,000.
The client personally guaranteed an SBA 7(a) loan for $150,000. His business revenue decreased significantly causing default and an accelerated balance of $143,000. The client received the SBA's Official 60-day notice with the debt scheduled for referral to the Treasury’s Bureau of Fiscal Service for aggressive collection in less than 26 days. We were hired to represent him, respond to the SBA's Official 60-day notice, and prevent enforced collection by the Treasury and the Department of Justice. We successfully negotiated a structured workout with an extended maturity date that included a reduction of the 14% interest rate and removal of substantial collection fees (30% of the loan balance), effectively saving the client over $242,000.
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