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If you default on your SBA loan, there are a number of ways it can be collected. We take a look at wage garnishment and what you can do about it.
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The United States Small Business Administration does a lot of work to help entrepreneurs get their dream businesses off the ground. Even a small SBA loan makes the difference between a dream and reality. Unfortunately, sometimes dreams don't pan out and businesses fail.
About 1 in 6 business owners with SBA loans default. While the US SBA may want to help small businesses succeed, they still expect to get paid back when they fail. They force repayment through a system of collections that include wage garnishments.
So what do you do if the US SBA is threatening you with wage garnishment? And how do you get out of it if they have already started collecting? Read on to find out!
The first thing you should know about SBA loans is that the term is actually a misnomer. SBA loans are actually issued by independent lenders, and the US SBA acts as a guarantor for up to 85 percent of the loan. That means you'll make payments to the lender and not the US SBA, and, if you default, you will work with them first to resolve the debt.
All lenders require borrowers whose share of the business is greater than 20 percent to sign a personal guarantee of the loan. This means that if your business tanks and the amount of your business' liquidated assets doesn't cover the remainder of your loan, you will be personally liable for repaying the loan.
The best time to start dealing with money troubles is when they start. The first sign of trouble is when you fail to make a loan payment on time. In response to late payments, most lenders will notify borrowers that they are late, offer a ten-day grace period, and they may charge a late fee.
If you fail to make a payment within ten days, then the lender will pursue repayment. Not all lenders act in the same manner at this point, but, as time goes on, you can expect their collection efforts to get progressively more aggressive.
At this point, it is a good idea to contact the lender and discuss restructuring your repayment plan to help you better afford your payments. Lenders are flexible and may offer to totally restructure your loan, or they may offer interest-only payments for a short period of time to allow you to get back on your feet.
If all of your lender's collection actions fail, then the lender will turn to the US SBA to collect on their guarantee.
Once your lender collects on the US SBA's guarantee, the SBA will start their own collection pursuits. The first thing you'll receive from them is a 60-Day Official Notice that gives you the opportunity to clear your default through an administrative review, an offer in compromise, or a repayment agreement
If you do not respond to the SBA within their defined time frame, then they will pursue more aggressive action and turn your case over to the Department of Treasury's Bureau of Fiscal Service to collect. The amount they collect will be up to 30 percent more than what you owe due to administrative fees and costs.
One way that the SBA can collect on your loan is through wage garnishment. Unlike with credit card companies, the government does not need to obtain a judgment against you before they can garnish your wages.
The first sign that a wage garnishment is coming is a Notice of Administrative Wage Garnishment that includes the date that your wages will begin to be garnished. Once in force, the SBA can collect up to 15 percent of your disposable income which is essentially your net pay — the money remaining from your paycheck after taxes and deductions have been taken out.
This doesn't just happen when the SBA comes to collect. It is possible that your lender may attempt to garnish your wages by first filing for a judgment against you and collecting on it with wage garnishment. Your lender can generally collect up to 25 percent of your wages to repay what you owe.
Just because the SBA has started garnishing your wages, it doesn't mean that you have to grin and bear it until your debt is paid off. You have options to help stop the wage garnishment and get the SBA off your back.
The first thing you should do when you receive notice of wage garnishment is to contact an attorney who has experience working with the SBA. Experienced attorneys know the ins and outs of how the SBA pursues collections and how to work with them to make repayment less of a burden on you.
Your attorney can assist you with getting a hearing before the wage garnishment goes into effect. They may also help you set up an affordable payment plan that doesn't involve notifying your employer and garnishing your wages.
If you truly don't have the money to repay the SBA, then your last-ditch option is filing for bankruptcy. This is an option if the lender is pursuing collection actions as well. Depending on your financial situation, you may qualify for a type of bankruptcy that liquidates your assets and forgives your debt or one that restructures your debt.
Dealing with wage garnishment as a result of defaulting on your SBA loan can be incredibly stressful. Though the best time to deal with a past due SBA loan is within the first few weeks of default, there are still options available to you to help you resolve your financial issues and get back on your feet. Remember, if you're in hot water with the US SBA, it's best to get in touch with an experienced attorney to help you navigate the repayment process.
Looking for a great attorney to help you deal with the US Small Business Association? You're in the right place. Contact us today to see how we can help you get out of default.
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.
Our firm successfully resolved an SBA COVID-19 Economic Injury Disaster Loan (EIDL) default in the amount of $150,000 on behalf of Illinois-based client. After the business permanently closed due to the economic impacts of the pandemic, the owners faced potential personal liability if the business collateral was not liquidated properly under the SBA Security Agreement.
We guided the client through the SBA’s Business Closure Review process, prepared a comprehensive financial submission, and negotiated directly with the SBA to release the collateral securing the loan. The borrower satisfied their collateral obligations with a payment of $2,075, resolving the SBA’s security interest.
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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