Navigating The Uncertainty of SBA Offer in Compromise: A Lawscape Perspective

Let me paint you a bit of an all-too-common picture, shall we? You’re a hardworking small business owner with a loan backed by the Small Business Administration (SBA), just like thousands of others across the nation. Then the unthinkable happens – the chaos of the pandemic upends the economy, taking your business with it. And now, you’re burdened with a debt exceeding $30,000 that you just can’t shake off.

According to recent statistics, you’re far from alone in this predicament – with approximately one in six (or 17.4%) businesses facing an SBA loan default. At the onset of a default, your first 60 days are crucial—with the options to either settle or provide “offers in compromise”. And let’s be clear, without the right moves here, the Treasury Department will take the reins.

SBA Offers in Compromise: The Ins and Outs

Between facing potential fees and costs of up to 30% from the Treasury Department, and making a move during the SBA’s 60-day grace period, the latter is a more advisible choice. In that timeframe, consider either requesting an administrative review or filing an offer in compromise.

Here’s the gist: think of an offer in compromise as a mutually agreeable, out-of-court settlement, largely suitable for businesses on the verge of liquidation. Crucially, the offer should be in an acceptable format, include specific elements and be agreeable to both the borrowers and guarantors.

Filing an Offer in Compromise: How It Works

In terms of the official how-to, an Offer in Compromise is submitted using the SBA Form 1150. The SBA mandates certain elements for a compromise offer:

There’s some room for customization too, just in case you need to accommodate special factors. It’s then time for a financial review, which scrutinizes aspects around the borrower and guarantor, local economy conditions and details on the settlement with other creditors.

SBA Attorney: The Ace up Your Sleeve

Given the stringent enforcement of an SBA loan default statute of limitations and the specific requirements of the submission, it doesn’t hurt to have an ally— like someone from the Lawscape— on your side right after you receive your 60-day notice.

Proof of Financial Hardship: The Deal-Breaker

In essence, filing an Offer in Compromise on default implies that you’re financially struggling to make payments. Unless you can substantiate this claim, chances are that you won’t receive a settlement agreement. In this financial review, even small activities such as frequent dining out or travel may put a dent in your narrative of financial hardship.

Liquidating Business Assets: Treading Carefully

Sometimes, liquidating your business assets may not be enough to repay your SBA loan debt. As such, it’s vital to ensure that you proceed carefully with liquidation to avoid running foul with the lender. Your first port of call should be checking in with your lender on the liquidation procedure for your business loan.

The Role of Home Equity

If you’ve pledged your home as collateral for your SBA loan, its equity could make or break your prospects of a settlement offer. That being said, how the SBA values your home may not always line up with market value less loan balances. They may factor in a discount off the market value, potentially leading to an unwanted scenario of being forced to sell your home to pay off debts.

Attorney Assistance: Essential or Optional?

An attorney play a crucial role in preparing your SBA Offer in Compromise—it’s rather like having a seasoned insider on your team that can offer sobering advice and guide you through the complexity of:

The Stakes: Wage Garnishment and Tax Refund Offset

Should you be tardy in your actions, the SBA could transfer your case to the U.S. Treasury Department Offset Program (TOP). This move could lead to your tax refund being seized, wages being garnished, and even set-offs against your Social Security payments.

The SBA could command an administrative wage garnishment (AWG) via your current employer to pay your overdue debt. However, you retain the right to request a hearing prior to its enactment. The procedure for requesting a hearing, however, varies based on whether it was spearheaded by the SBA or the Treasury Department.

If the SBA elects to redirect your federal income tax withholding refund to offset your SBA loan, they must notify you in advance. This heads-up gives you an opportunity to dispute the offset, especially in cases where debt is no longer due or there are other circumstances worthy of consideration.

Can SBA Loan Deferment and Debt Relief Help Send the Calvary In?

If you’ve requested a loan deferment, it helps to note that such modifications or suspensions on your loan payments aren’t considered as a default. In response to the pandemic, multiple business sought and procured deferments—usually for half a year. Depending on your specific case, this could be a lifeline. The SBA has extended their deferments until 2022, by adding the unmade loan payments during the deferment to the term of your loan, thereby extending your loan’s maturity date. However, keep in mind that interest still accumulates during this period.

Grasping the SBA Loan Default Statute of Limitations

SBA loans are subject to the Federal Statute of Limitations Act, 28 U.S.C. 2415(a), which necessitates any action for damages to be filed within six years of when the action accrues or within one year after final decisions were rendered in an administrative proceeding. As the interpretations of when an action needs to be filed can vary, have the Lawscape experts help you navigate through compliance easily.

An SBA loan debt over $30K – What now?

If the daunting figure of a $30,000+ outstanding loan to the SBA hangs over your business, consider reaching out to the Lawscape for a thorough case evaluation on filing offers in compromise. With vast experience and unparalleled expertise, we’re committed to providing real solutions to those confronting SBA loan issues nationwide. Why not reach out today at (833) 428-0937 and book a consultation?

The Lawscape Advantage

By choosing us, you benefit from our successful track record in resolving millions of dollars in SBA and Treasury debts—with strategies encompassing Offer in Compromise and negotiated repayment agreements, without resorting to bankruptcy or facing home foreclosure.

We are authorized by the Agency Practice Act to represent Federal Debtors nationwide before agencies like the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service. So when you are dealing with Treasury or SBA debt problems, you can count on the Lawscape to be your steadfast ally.