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SBA Loan Defaults & Offers in Compromise
Often, when small business entrepreneurs want to purchase a new business or expand their current business, the entrepreneur will visit local banks to seek financing for acquisition or expansion. Unfortunately, for a variety of reasons, banks have been reluctant to provide financing for these small business entrepreneurs. Recognizing the problem faced by these job-creating entrepreneurs, the Small Business Administration created a loan guaranty program in which the SBA would guaranty the repayment of a loan to a member bank if certain criteria are met.
Pursuant to this program, the SBA has guaranteed millions in small business loans over the last five years. In exchange, the bank and the SBA have required the business owner to sign broad personal guaranties as well as pledge the owner’s personal residence and other valuable assets as security for repayment of the loan.
Sadly, today’s tough times have created an environment in which the SBA-backed small business entrepreneur can’t make ends meet despite the fact that they had a well-conceived business plan and were appropriately capitalized initially with a significant personal investment and an SBA-guarantied small business debt.
These SBA loans default and the business owner must deal with the bank and SBA. These business owners are at a real disadvantage when dealing with the bank; they are experts in their industry, not in small business debt settlement negotiations. Moreover, because the SBA has promised to cover the overwhelming majority of the bank’s losses, the bank is essentially indifferent to whether the business owner files bankruptcy or attempts to pay a portion of the amount due in exchange for a release of the personal guaranties.
Even worse, often the business owner has tapped every source of credit available to him or her to keep the business afloat, including credit cards, home equity loans, and friends and family. They face a mountain of debt, loss of their personal residence, and all their possessions.
Contact a Debt Settlement Lawyer to Protect Your Rights
To deal with these facts, smart business owners do not rely on self-described “consultants” who can only whisper in the client’s ear about what they think should be done, consultants who cannot so much as speak with the bank on your behalf. Instead, smart business owners turn to competent legal counsel to represent and shepherd them through a process in which the owner makes an offer to the bank and the SBA in compromise of the claims they have. Essentially, in an offer in compromise, the owner says “take X dollars and release me and my possessions from the personal guaranty”. The devil is, of course, in the details.
What will it take for the bank and SBA to say “yes, we will release you from your guaranty”? The bank will likely accept 90% of what you owe, but in what circumstances will they accept just 5% of what you owe? What factors are taken into account in crafting the offer in compromise or loan workout? What must be done before the bank will even consider an offer in compromise? What actions must the owner avoid at all costs lest they lose their ability to obtain a release from the bank and the SBA? How does the business owner deal with all of the other debt they have accumulated related to the business? What about other personal guaranties the business owners have given? How do they factor into the equation? Should the business owner consider bankruptcy instead of pursuing settlement with the bank and SBA?
All of these questions are extremely fact-specific. All of these questions are best answered by competent and experienced legal counsel. Kevin McCarthy is an experienced negotiator and has successfully negotiated offers in compromise on behalf of his clients with the bank approved by the SBA. The firm offers flat fee and success fee arrangements for its clients facing SBA loan defaults across the country.
The first step to successful negotiation of your SBA loan debt default is to arrange a confidential and free initial consultation with McCarthy Law PLC. Call 480.696.5936 or email us today to schedule your free consultation with McCarthy Law PLC.