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.
Our firm successfully resolved an SBA 7(a) loan default in the amount of $140,000 on behalf of a husband-and-wife guarantor pair. The business had closed following a prolonged decline in revenue, leaving the borrowers personally liable for the remaining balance.
After conducting a comprehensive financial analysis and preparing a detailed SBA Offer in Compromise (SBA OIC) package, we negotiated directly with the SBA and the lender to achieve a settlement for $70,000 — just 50% of the outstanding balance. This settlement released the borrowers from further personal liability and allowed them to move forward without the threat of enforced collection.
Client personally guaranteed an SBA 7(a) loan for $100,000 from the lender. The SBA loan went into early default in 2006 less than 12 months from disbursement. The SBA paid the 7(a) guaranty monies to the lender and subsequently acquired the deficiency balance of about $96,000, including the right to collect against the guarantor. However, the SBA sent the Official 60-Day Due Process Notice to the Client's defunct business address instead of his personal residence, which he never received. As a result, the debt was transferred to Treasury's Bureau of Fiscal Service where substantial collection fees were assessed, including accrued interest per the promissory note. Treasury eventually referred the debt to a Private Collection Agency (PCA) - Pioneer Credit Recovery, Inc. Pioneer sent a demand letter claiming a debt balance of almost $310,000 - a shocking 223% increase from the original loan amount assigned to the SBA. Client's social security disability benefits were seized through the Treasury Offset Program (TOP). Client hired the Firm to represent him as the debt continued to snowball despite seizure of his social security benefits and federal tax refunds as the involuntary payments were first applied to Treasury's collection fees, then to accrued interest with minimal allocation to the SBA principal balance.
We initially submitted a Cross-Servicing Dispute (CSD) challenging the referral of the debt to Treasury based on the defective notice sent to the defunct business address. Despite overwhelming evidence proving a violation of the Client's Due Process rights, the SBA still rejected the CSD. As a result, an Appeals Petition was filed with the SBA Office of Hearings & Appeals (OHA) Court challenging the SBA decision and its certification the debt was legally enforceable in the amount claimed. After several months of litigation before the SBA OHA Court, our Firm Attorney successfully negotiated an Offer in Compromise (OIC) Term Workout with the SBA Supervising Trial Attorney for $82,000 spread over a term of 74 months at a significantly reduced interest rate saving the Client an estimated $241,000 in Treasury collection fees, accrued interest (contract interest rate and Current Value of Funds Rate (CVFR)), and the PCA contingency fee.
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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