SBA Loan Default Help

SBA Loan Default? 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 loss of homes, cars and what few remaining assets they have, borrowers often mistakenly resort to bankruptcy under the notion that SBA loans are dischargeable; and they are. However, the SBA’s lien is not necessarily extinguished by a bankruptcy and in some jurisdictions not all personal property is protected from creditors in bankruptcy making bankruptcy a poor solution. Fortunately, bankruptcy is not the only option to resolve the SBA loan default.

The SBA Offer in Compromise

Similar in concept to the program offered by the IRS, the SBA Offer in Compromise (OIC) program allows your lender and the SBA, in some circumstances, to accept less than what you owe in full satisfaction of your remaining SBA debt. SBA OICs may result in SBA debt forgiveness in many cases, but each case is unique and the success of an SBA OIC depends, in part, on how early in the SBA default process the debtor retains counsel.

What if I just do nothing? A bad idea.

The SBA itself is not bound by state statues of limitations and may file suit to collect for up to six (6) years. And, suits to foreclose on real property securing an 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 have 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:

1. Tax refunds
2. Social Security benefits
3. Federal/military pay,
4. Federal/military retirements
5. Contractor/vendor payments
6. Railroad Retirement benefits

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

Let us help.

Put our experience to work for you. Give us a call at (214) 446-3934 or use our online “Contact Us” Form and schedule a free consultation. We will sit down with you in our office, review your loans, and discuss the options available to you. If, after speaking with one of our attorneys, you want to hire us we offer affordable flat fee legal services.