For Your Business: Should You Consider Small Loans from the SBA?
The SBA can help advance such entrepreneurs small loans to give their firms a chance at thriving again. But you will have to sign a personal guarantee.
As many as 80 percent of new small businesses fail within 18 months of opening their doors. By year 10, the number climbs to 96 percent. These are not poorly operated companies being run by unprepared entrepreneurs. Many of them fall victim to a weak local economy, uncontrollable circumstances and too much competition in their area. All of these business will have debt they default on, and many will have SBA loans they are unable to pay back as expected.
An SBA loan default can result in the loss of business property, business accounts being seized and personal property may be seized as well. The result can be financially devastating for the business owner who is already struggling. It can lead to wage garnishments for the borrower and prevent them from receiving any future loans from the SBA. If the amount collected is insufficient, the U.S. Treasury can take the reins and collect through the Tax Offset Program. This can result in additional fees and interest charges being added to the debt and any tax refunds will be seized or garnished until the amount is repaid in full.
To reduce the impact to the borrower, an SBA Offer in Compromise is an option that may make it easier for the borrower to satisfy their end of the agreement without losing all of their property. This method is not allowed if the borrower already has the means to repay the loan. Borrowers who are able to pay a lump sum or a repayment plan that will not exceed 5 years are more likely to get their offer approved.
It will benefit the borrower to contact the SBA or an attorney before they reach the point of forcing an SBA loan foreclosure. The collection methods with the SBA are similar to other debts. Missed payments will traditionally result in collections calls and letters. If an SBA demand letter is received, it is important to respond to it, but to do so correctly. Contacting an attorney familiar with this type of legal matter will make it much easier to avoid making common mistakes that could have serious financial consequences. SBA collection processes can be aggressive, so do not ignore the warnings. Take action immediately to reduce the potential impact.
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 COVID-19 Economic Injury Disaster Loan (EIDL) in the original amount of $150,000 for a Florida-based borrower. The loan, issued on June 4, 2020, was secured by business assets and potential personal liability through the SBA's Security Agreement.
Following the permanent closure of the business, we guided the client through the SBA’s Business Closure Review process and prepared a comprehensive collateral analysis. We negotiated directly with the SBA, obtaining a full release of the business collateral for $2,910 — satisfying the borrower’s obligations under the Security Agreement and eliminating any further enforcement risk against the pledged assets.
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.
The client personally guaranteed an SBA 504 loan balance of $375,000. Debt had been cross-referred to the Treasury at the time we got involved with the case. We successfully had debt recalled to the SBA where we then presented an SBA OIC that was accepted for $58,000.
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