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We will analyze your SBA loan problems and advise you on potential solutions such as an SBA offer in compromise for your SBA loan default.
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.
Book a Consultation CallAdministrative Wage Garnishment
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 obtained an SBA 7(a) loan for their small business in the amount of $298,000. They pledged their primary residence and personal guarantees as direct collateral for the loan. The business failed, the lender was paid the 7(a) guaranty money and the debt was assigned to the SBA. Clients received the Official 60-Day Notice giving them a couple of options to resolve the debt balance directly with the SBA before referral to Treasury's Bureau of Fiscal Service. The risk of referral to Treasury would add nearly $95,000 to the SBA principal loan balance. With the default interest rate at 7.5%, the amount of money to pay toward interest was projected at $198,600. Clients hired the Firm with only 4 days left to respond to the 60-Day due process notice. Because the clients were not eligible for an Offer in Compromise (OIC) due to the significant equity in their home and the SBA lien encumbering it, the Firm Attorneys proposed a Structured Workout to resolve the SBA debt. After back and forth negotiations, the SBA Loan Specialist assigned to the case approved the Workout terms which prevented potential foreclosure of their home, but also saved the clients approximately $294,000 over the agreed-upon Workout term with a waiver of all contractual and statutory administrative fees, collection costs, penalties, and interest.
Client personally guaranteed SBA 7(a) loan for $350,000. The small business failed but because of the personal guarantee liability, the client continued to pay the monthly principal & interest out-of-pocket draining his savings. The client hired a local attorney but quickly realized that he was not familiar with SBA-backed loans or their standard operating procedures. Our firm was subsequently hired after the client received the SBA's official 60-day notice. After back-and-forth negotiations, we were able to convince the SBA to reinstate the loan, retract the acceleration of the outstanding balance, modify the original terms, and approve a structured workout reducing the interest rate from 7.75% to 0% and extending the maturity date for a longer period to make the monthly payments affordable. In conclusion, not only we were able to help the client avoid litigation and bankruptcy, but our SBA lawyers also saved him approximately $227,945 over the term of the workout.
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.
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