Legal Considerations for Small Business Owners
Empower your small business with expert legal guidance from the SBA attorneys at Protect Law Group. Learn more about legal considerations today!
Small business owners face unprecedented times in this covid-19 economy. Many businesses have 2 major expenses to service every month: (1) SBA loan and (2) Commercial lease.
A material default occurs when the small business is not able to pay the agreed-upon monthly principal and interest payment. After several missed payments (typically 60-90 days), the SBA participating lender (if it is 7(a) loan) or Certified Development Corporation (if it is a 504 loan), will come knocking and contact you asking “where’s the monthly payment?”
Many small business owners will respond to their lender and request some time or try to modify their payment schedules. But some will just bury their head in the sand and avoid responding to their bank. It is better to respond to your bank as opposed to ignoring the problem. What you don’t want is for your SBA loan to be placed in “liquidation” status and transferred to the bank’s Special Assets Department (SAD).
In the covid-19 economy, most SBA 7(a) lenders offer loss mitigation relief measures. Some lenders offer internal deferment. Deferment typically involves deferring or postponing the monthly principal payment due and allowing small businesses to pay interest only. The postponed monthly principal payments are then tacked onto the end of the original amortized payment schedule. Other lenders place the loan in the SBA CARES Act’s Small Business Debt Relief Program. Here, the SBA makes the principal and interest payments to the SBA lender on behalf of the business for six (6) consecutive months.
If you are placed into a Deferment or the Small Business Debt Relief Program, this is your opportunity to pivot your business and come up with creative ideas to generate revenue while your payments on the SBA loan are temporarily postponed. Rest assured, however, that your bank will keep you on a short leash and may require monthly updates.
Some banks may not offer Deferment or placement into the Small Business Debt Relief Program. If your bank is not offering these loss mitigation measures, you need to find out why. It could be because you don’t qualify for these programs or that the bank simply wants to cut its losses and liquidate collateral that has been voluntarily pledged as security for the SBA loan. This collateral could be commercial real estate, residential real estate, bank or investment accounts, certificate of deposits or business, property and equipment.
If confronted with a situation where the bank will not assist you, you should consult with an experienced SBA attorney to discuss your options and come up with a game plan to counter the bank’s actions. Some options may include negotiating with the SBA lender directly, seeking assistance from the SBA and requesting that it mediate the impasse between you and the SBA lender or exploring arbitration or litigation based on lender liability theories and allegations.
Don’t try to resolve SBA loan default issues by yourself. Speak to an SBA Attorney with Protect Law Group.
Protect Law Group has proven, nationwide experience resolving SBA loan problems.
Owe more than $30,000? Contact Protect Law Group for an SBA loan case evaluation or call us toll-free at 1-888-756-9969.
We can analyze your SBA loan problems and advise you on potential solutions.
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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 7a loan in the original amount of $364,000 for a New Jersey-based borrower. The client filed Chapter 7 bankruptcy but the mortgage on his real estate securing the loan remained in place. The available equity amounted to $263,470 and the deficiency equaled $317,886.
We gathered the pertinent documentation and prepared a comprehensive collateral analysis. We negotiated directly with the SBA, obtaining a full release of the mortgage for $80,000.
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 received the SBA's Official 60-Day Notice for a loan that was obtained by her small business in 2001. The SBA loan went into default in 2004 but after hearing nothing from the SBA lender or the SBA for 20 years, out of the blue, she received the SBA's collection due process notice which provided her with only one of four options: (1) repay the entire accelerated balance immediately; (2) negotiate a repayment arrangement; (3) challenge the legal enforceability of the debt with evidence; or (4) request an OHA hearing before a U.S. Administrative Law Judge.
Client hired the Firm to represent her with only 13 days left before the expiration deadline to respond to the SBA's Official 60-Day Notice. The Firm attorneys immediately researched the SBA's Official loan database to obtain information regarding the 7(a) loan. Thereafter, the Firm attorneys conducted legal research and asserted certain affirmative defenses challenging the legal enforceability of the debt. A written response was timely filed to the 60-Day Notice with the SBA subsequently agreeing with the client's affirmative defenses and legal arguments. As a result, the SBA rendered a decision immediately terminating collection of the debt against the client's alleged personal guarantee liability saving her $50,000.
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