What are SBA 504/CDC Loans and What Happens If I Default?
CDC loans bolster your business's usable capital. Keep reading to discover what SBA 504 loans are and what action you can take if you default.
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Book a Consultation CallThe Treasury Offset Program is a centralized offset program, administered by the Treasury Department’s Bureau of the Fiscal Service (BFS), to collect delinquent federal agency debts (including SBA debts), in accordance with 26 U.S.C. § 6402(d) (collection of debts owed to federal agencies), 31 U.S.C. § 3720A (reduction of tax refund by amount of the debts), and other applicable laws.
Payment agencies prepare and certify payment vouchers to BFS and disbursing officials at other federal agencies that are non-Treasury disbursed (such as the Department of Defense), who then disburse payments. The payment vouchers contain information about the payment including the Tax Identification Number (TIN) and name of the recipient.
Before an eligible federal payment is disbursed to a payee, disbursing officials compare the payment information with debtor information, which has been supplied by the federal creditor agency, in BFS’s delinquent debtor database. If the payee's TIN and name match the TIN and name of a debtor, the disbursing official offsets (withholds) the payment, in whole or in part, to satisfy the debt, to the extent legally allowed.
BFS transmits amounts collected through offset to the appropriate federal creditor agencies. BFS maintains information about the delinquent debt in the TOP delinquent debtor database and continues to offset eligible federal payments until the federal creditor agency suspends or terminates debt collection or offset activity for the debt.
A federal creditor agency will suspend collection if the debt is subject to a bankruptcy stay or if other reasons justify suspension. A federal creditor agency will terminate collection of a debt if it is paid in full, compromised, discharged, or if other reasons justify termination.
The federal government's administrative debt collection activities are governed by a number of federal laws. BFS, as the central disbursing agency of the federal government is required to perform such offset pursuant to 31 U.S.C. § 3716(c).
There are, however, several federal rules and regulations that BFS must adhere to prior to utilizing its TOP levy powers. These rules and regulations my be viewed by clicking: Summary of TOP's Program Rules and Requirements - which explains the general rules applicable to TOP, due process prerequisites, offset amounts (percent of payments that may be offset by debt type) and TOP payment exemptions.
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Clients personally guaranteed SBA 7(a) loan balance of over $300,000. Clients also pledged their homes as additional collateral. SBA OIC accepted $87,000 with the full lien release against the home.
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.
Our firm successfully facilitated the SBA settlement of a COVID-19 Economic Injury Disaster Loan (EIDL) where borrower received an SBA disaster loan of $150,000, but due to the severe economic impact of the COVID-19 pandemic, the business was unable to recover.
Despite the borrower’s efforts to maintain operations, shutdowns and restrictions significantly reduced the customer base and revenue, making continued operations unsustainable. After a thorough business closure review, we negotiated with the SBA, securing a resolution where the borrower paid only $6,015 to release the collateral, with no further financial liability for the owner/officer.
This case demonstrates how businesses affected by the pandemic can navigate SBA loan settlements effectively. If your business is struggling with an SBA EIDL loan, we specialize in SBA Offer in Compromise (SBA OIC) solutions to help close outstanding debts while minimizing financial burden.
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