SBA Loan Default: 6 Things You Should Know
Are you concerned with what to do in the event of an SBA loan default? Then read about some things you'll need to consider when defaulting on an SBA loan.
Small businesses facing a loan default must take immediate action. A default could provide their lender with the legal right to seize all collateral used to secure the loan. This could include the building from which their company operates. Since these loans are backed by a personal guarantee and government funding, they require specific actions through an attorney. Local attorneys could help business owners acquire a SBA Offer in Compromise to settle their debt.
The first step when the owner receives a SBA demand letter is to seek legal counsel. An attorney could provide clarity about effective strategies to prevent a complete foreclosure of their property. A foreclosure could generate a higher loss for the business owner. This could also destroy their credit and make it impossible to acquire a different property later.
The next step is to complete the paperwork for the SBA offer in compromise. These documents provide a legal request for the offer in compromise. The attorney calculates the total value in which the borrower could pay to settle the SBA loan default. These documents are filed through the court once the compromise is accepted.
The attorney could also provide assistance through a Tax Offset Program. This helps the business owner acquire a settlement offer for any overdue tax payments associated with their company. They can submit these requests at the same time as the offer in compromise request.
The borrower should work with the attorney to acquire the most effective settlement. This could include closing the doors of their business and arranging the sale of the property. This could increase their odds of acquiring acceptance. It could also improve their ability to pay.
Lenders often accept these offers when the borrower can prove that they have the ability to pay the agreed upon value. This could prevent the likelihood of a SBA loan foreclosure and secure the borrower's credit.
Small businesses acquire government-backed loans to start new ventures. Unfortunately, select ventures may become unsuccessful. This could lead to a loan default and possible foreclosure. Business owners who need help should contact an attorney who could manage an offer of compromise for them today.
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 executed several trust deeds pledging seven (7) real estate properties and unconditional personal guarantees for an SBA 7(a) loan from the participating lender. The clients' small business failed and eventually defaulted on repayment of the loan exposing all collateral pledged by the clients. The SBA subsequently acquired the loan balance from the lender, including the right to liquidate and collect all pledged collateral pursuant to the trust deed instruments.
The Firm was hired to negotiate separate release of lien proposals for all 7 real estate properties. In preparation for the work assignment, the Firm Attorneys initiated discovery to secure records from the SBA and Treasury's Bureau of Fiscal Service. After reviewing the records and understanding the interplay between the lender and the SBA, the attorneys then prepared, submitted and negotiated the release of lien (ROL) for each of the 7 real estate properties for consideration.
After submitting the proposals, the assigned SBA Loan Specialists approved each ROL package - significantly reducing the total SBA debt claimed.
Client’s small business obtained an SBA 7(a) loan for $750,000. She and her husband signed personal guarantees exposing all of their non-exempt income and assets. With just 18 months left on the maturity date and payment on the remaining balance, the Great Recession of 2008 hit, which ultimately caused the business to fail and default on the loan terms. The 7(a) lender accelerated and sent a demand for full payment of the remaining loan balance. The SBA lender’s note allowed for a default interest rate of about 7% per year. In response to the lender's aggressive collection action, Client's husband filed for Chapter 7 bankruptcy in an attempt to protect against their personal assets. However, his bankruptcy discharge did not relieve the Client's personal guarantee liability for the SBA debt. The SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection against the Client to the SBA. The Client then received the SBA Official 60-Day Notice. After conducting a Case Evaluation with her, she then hired the Firm to respond and negotiate on her behalf with just 34 days left before the impending referral to Treasury. The Client wanted to dispute the SBA’s alleged debt balance as stated in the 60-Day Notice by claiming the 7(a) lender failed to liquidate business collateral in a commercially reasonable manner - which if done properly - proceeds would have paid back the entire debt balance. However, due to time constraints, waivers contained in the SBA loan instruments, including the fact the Client was not able to inspect the SBA's records for investigation purposes before the remaining deadline, Client agreed to submit a Structured Workout for the alleged balance in response to the Official 60-Day Notice as she was not eligible for an Offer in Compromise (OIC) because of equity in non-exempt income and assets. After back and forth negotiations, the SBA Loan Specialist approved the Workout proposal, reducing the Client's purported liability by nearly $142,142.27 in accrued interest, and statutory collection fees. Without the Firm's intervention and subsequent approval of the Workout proposal, the Client's debt amount (with accrued interest, Treasury's statutory collection fee and Treasury's interest based on the Current Value of Funds Rate (CVFR) would have been nearly $291,030.
Clients personally guaranteed an SBA 7(a) loan that was referred to the Department of Treasury for collection. Treasury claimed our clients owed over $220,000 once it added its statutory collection fees and interest. We were able to negotiate a significant reduction of the total claimed amount from $220,000 to $119,000, saving the clients over $100,000 by arguing for a waiver of the statutory 28%-30% administrative fees and costs.
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