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Bankruptcy is Not the Only Option.

Are you currently struggling to deal with an SBA loan default? The shuttering of your business and the seizure and liquidation of your business assets can be a painful and emotional time for many entrepreneurs. However, it is only when the borrower is reminded that they also pledged personal assets to the SBA that they begin to realize how much worse things can get.

Borrowers often mistakenly believe that because their loan is government backed that the government will simply step in to pay the lender off and relieve them of their remaining obligation on the Note.

Unfortunately, the SBA Loan Guarantee, the hallmark of SBA Loans, operates solely to protect the lender when an SBA loan default occurs and provides no protection to the borrower whatsoever. Put simply, the federal government will want its money back.

The Collection Process

Anxious to satisfy the SBA’s conditions for invoking the loan guaranty, lenders may quickly make demand on the borrower to make good on the Personal Guaranty provided when the loan was originated. In many cases an SBA default can completely wipe out an unprotected borrower. Many borrowers have few remaining liquid assets, having depleted them trying to save their business.

Faced with the threat of litigation and the loss of their home, and what few remaining assets they have, Borrowers often mistakenly resort to Bankruptcy under the false notion that settlement with the SBA is impossible.

However, the SBA’s lien is not necessarily extinguished by a bankruptcy and in some jurisdictions not all personal property is protected from creditors making bankruptcy a poor solution. Fortunately, bankruptcy is not the only option to resolve the SBA loan default.

The Settlement Process

During the critical time after your business assets have been liquidated and before any further litigation has been commenced, it is often possible to enter into settlement negotiations with the lender and the SBA to completely resolve the remaining loan deficiency for a fraction of the total amount due. SBA loan default help is available. This process is referred to as the SBA Offer in Compromise program.

Similar in concept to the program offered by the IRS, the SBA OIC program allows the lender and the SBA, in some circumstances, to accept less than what you owe in full satisfaction of your remaining SBA debt.

SBA offer in compromise settlements may result in SBA debt forgiveness in many cases, but each case is unique and the success of an SBA OIC depends on how early in the SBA default process the debtor retains counsel. Our SBA loan default attorneys are experienced in dealing with both the SBA and SBA lender banks.

Doing Nothing is a Bad Idea

The SBA itself is not bound by any state’s statute of limitations and may file suit to collect for up to six (6) years. And, suits to foreclose on real property securing the SBA loan may be filed at any time. Moreover, separate and apart from filing a lawsuit to collect from a guarantor on the loan, the SBA many refer your SBA loan default to the U.S. Treasury for action where the collection process continues indefinitely.

While settling with the government at this stage is still possible, the Treasury Offset Program (“TOP”) tries to collect about 50% of the remaining loan balance and has the tools to do it. Before even starting to collect, TOP employs private collection agencies and fees can easily add 30% or more to the remaining balance of the loan.

In addition to garnishing your wages, something that many creditors cannot do in debtor friendly states, the Treasury Offset Program can garnish any of the following:

• Tax refunds
• Social Security benefits
• Federal/military pay,
• Federal/military retirements
• Contractor/vendor payments
• Railroad Retirement benefits

Many other federal benefits are also non-exempt and there is no statute of limitations for the Treasury to collect on a defaulted SBA loan.

Starting the Offer in process early can make all the difference.