Let’s Chat About SBA Loans Gone Sour

Imagine this: You’re kicking back, sipping your morning coffee and flipping through the news, and you stumble upon an eyebrow-raising headline – a whopping $1.3 billion taxpayer dollars have ended up footing the bill for defaulted SBA loans. Suddenly, you’re having déja vu. Automobile industry bailouts, bank bailouts, home mortgage and collateralized debt obligations (CDO) bailouts…and now this. Our old acquaintances, SBA and AIG, share a common denominator — the TAXPAYER BAILOUT.

What Went Down?

Here’s the lowdown: according to an independent investigation, the chaperones, so to speak, were found sleeping on the job. The consequent lax federal oversight gave lenders carte blanche to repeatedly make wobbly loans to small businesses under a government program – a reckless endeavor that’s cost taxpayers about $1.3 billion in default cases since the turn of the century.

You’d be aghast to know that some borrowers in the Small Business Administration’s (SBA) primary guaranteed loan program bailed out so swiftly, they didn’t even pay a dime on their loans. Yes, you heard that right – a big fat zero. Nationally recognized franchises such as Quiznos and Cold Stone Creamery wrangled millions of dollars in loans through this program, turning a blind eye to extensive default histories.

“Hypothetically, the fox got too preoccupied and failed to keep an eye on the hen house,” joked Pat Newcomb, director of the Ohio Small Business Development Center at the Entrepreneur Center in Dayton, Ohio. “Quite a few people secured small-business loans between 2004 and 2007 who probably should’ve been given a hard pass. They were high-risk loans from the get-go and, trust me, they just spiraled downwards.”

Let’s Crunch Some Numbers

SBA’s 7(a) program hit a milestone of over 1 million loans since 1990, based on a third-party analysis of SBA loan data. Out of this, discounting the 280,948 still-active loans, trouble strikes when we learn that more than 1 in 5 of the remaining loans (precisely 168,324) concluded in a default death knell. Once discharged, the elusive funds become almost impossible to recuperate. In fact, the SBA reports that between the years 2010 and 2012, a measly 0.63 percent of referred loans were reclaimed by the U.S. Treasury.

Following the financial catastrophe of 2008, default rates ballooned and taxpayer subsidies skyrocketed. Yet an independent investigation detected that some dubious practices by the SBA and lenders were creating a dicey game with an already-risky small-business lending program.

Get the Scoop

Let me lay down some findings unearthed by the investigation:

• SBA loans were granted by lenders who increasingly banked on puffed-up real estate values, loosen lending measures or strayed from SBA stipulations.

• Quite a chunk of these bad loans originated from lenders generously coughing up loans to franchisees of national companies, blissfully ignoring past default histories.

• An alarmingly large number of borrowers hardly coughed up the dough on the discharged loans.

• Over in Dayton, Ohio, lenders happily pocketed a cool $36.4 million from the SBA for defaults out of the 4,419 SBA loans made from the beginning of 1990 to the end of February 2012.

• Lenders bore minimal risk, with the government kindly guaranteeing up to 85% of the loan amount and the option to sell the loans on the secondary market.

Does any of this give you pause? If you find yourself in a tangle with an SBA loan, remember that the clock starts ticking once you receive a due process 60-day referral letter warning. After those two months have whizzed by, your SBA loan gets dispatched to the United States Treasury Department.

Don’t Be Left High and Dry

Here’s the kicker; once the Treasury Department and the Bureau of Fiscal Service have you on their radar, they can summon some hefty collection tactics against your delinquent or defaulted federal agency debt.

A word to the wise: get in touch with the Lawscape, led by the seasoned Lawscape, before you’re blindsided by the DOT’s special Bureau of Fiscal Service, wielding a Treasury Offset Program (TOP), an Administrative Wage Garnishment (AWG), or – worse still – Department of Justice collection litigation.

Have Your Back Covered with Lawscape

The good folks at the Lawscape have chalked up a stellar track record in handling SBA debts and have swooped in to rescue countless clients from filing for bankruptcy or facing home foreclosure.

Our commando legal team is 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. Together, we’ll navigate the rough waters of your SBA or Treasury debt debacle. Remember – you don’t have to go it alone. Reliable, experienced help is just a phone call or a click away at 212-460-5004 or our contact form.