Even though you will probably have to shut down your company, SBA loan forgiveness is a great way to help you recover from a failed business venture.
What Is SBA Loan Forgiveness and How Does It Work?
Congress approved and the president signed the CARES Act. What is referred to as the Paycheck Protection Program (“PPP”) was a component of the CARES Act. PPP loans are 100% federally guaranteed small business loans designed to help businesses keep their payroll levels while allowing for some loan forgiveness. The loans are offered to qualified businesses until June 30, 2020 to pay for:
On August 11, 2020, the SBA published Frequently Asked Questions (FAQs) regarding the PPP Loan Forgiveness process which you can access here: SBA PPP Loan Forgiveness FAQs
To apply for loan forgiveness for the SBA PPP Loan program, you are required to complete the U.S. Small Business Administration Form 3508
The United States Small Business Administration provides funding opportunities and learning resources to help small businesses across the nation. The SBA loan program is one of their most well-liked sources of funding.
There are various SBA loan options available to help businesses achieve their objectives, from buying new equipment to buying land. Businesses typically benefit from these loans by expanding and using their profits to repay their debts, but this isn’t always the case.
Only about 1 in 6 SBA 7(a) loans are not paid back. Owners defaulting on their loans may want to try applying for SBA loan forgiveness to lessen their debts.
The SBA Loan Forgiveness Program is described in detail below.
What Is an SBA Loan?
An SBA loan is a small-business loan. It’s granted by the U. S. After being issued by a bank or other participating lender, the Small Business Administration
Up to 85% of an SBA loan up to $150,000 is guaranteed. For loans over $150,000, the SBA loan guarantee is up to 75%.
In the U.S., there are four main categories of SBA loans. S. including:
The original 7(a) lending program remains the most popular.
Who Needs SBA Loan Forgiveness?
Not every business that takes out an SBA loan succeeds. Consider SBA loan forgiveness if you discover your company is not profitable and go into default on your loan.
You most likely get a late notice from your lender after missing your first payment after about 10 days. If you can still make a payment, expect to be charged more because most lenders have late fees. Try to keep track of your payments since not all lenders will notify you if you’ve fallen behind.
The lender will first try to collect from the borrower before contacting the SBA.
Some lenders may try to refinance the SBA loan or come up with a new repayment schedule. They might propose a total loan restructuring or short-term interest-only payments. This is not considered defaulting on the loan.
Loan forgiveness requests can only be made by companies that actually default on their SBA loans. Be mindful that you can stop making payments on a loan and still go into default. When you disregard the loan’s conditions, such as:
The absence of repayment is a much more frequent cause of default on loans than breaching the terms of the loan agreement.
How Does the SBA Loan Forgiveness Program Work?
However, there is no guarantee the SBA will grant the request if the business owner is in default on their SBA loan. It is referred to as an “offer in compromise” more frequently.
The SBA assesses your situation and talks with the lender about it The SBA may act, but only after the lender has made an effort to recover the defaulted loan and been unsuccessful. In order to recover the debt, the SBA buys back between 50 and 85 percent of the loan.
As the personal guarantor, the SBA will depend on you to repay the loan. If you are unable to repay the loan in full, you may submit an offer in compromise by proposing to pay back a portion of it. The SBA has discretion to accept or reject your proposal.
The SBA may take assets from the personal guarantor of the business if you are unable to repay or refuse to repay. Any owner holding more than 20% of the company’s stock would have agreed to act as a guarantor and be responsible.
How Does the SBA Collect Debt?
The SBA has two options for recovering the debt-owed funds. Either through the Treasury Offset Program (TOP) or by cross-servicing.
The Treasury Offset Program (TOP) uses the refund of business or guarantor income taxes to pay back the debt. The money is automatically applied to the SBA loan default debt rather than the anticipated tax refund.
Cross-servicing is the practice of the SBA sending past-due loans to the U S. Department of the Treasury’s Bureau of the Fiscal Service. They will collect the debt by:
In order to avoid these unpleasant options, it is preferable to make your best offer at the beginning of SBA loan settlement negotiations.
Are There Any Drawbacks to SBA Loan Forgiveness?
Any relief seems miraculous when your company is failing and you are drowning in debt. However, be aware that loan forgiveness has a few drawbacks if you need it and are unable to refinance your SBA loan.
You must first completely dissolve your company and liquidate all of its assets. This helps to bring down the amount of debt owed.
Second, understand that requesting SBA loan forgiveness has a negative impact on your company’s credit history. If you agreed to serve as the guarantor for the defaulted SBA loan, it may also negatively impact your personal credit.
Last but not least, business owners who receive loan forgiveness from the SBA will have a much harder time in the future getting approved for federal business loans.
Don’t Try to Resolve SBA Loan Issues Alone
Now that you know the basics of SBA loans and what happens if you default on one, you can make an informed decision.
Chapter 7 bankruptcy may seem like a better option than applying for SBA loan forgiveness, but that isn’t always the case. Getting a second opinion on what to do can be helpful because each lender and loan is a little bit different.
Don’t try to resolve SBA loan issues alone. Speak to an attorney with the Protect Law Group!.
The Protect Law Group has demonstrated expertise in negotiating SBA debts and assisting businesses with bankruptcy filings across the country.
Contact the Protect Law Group right away for an SBA loan case evaluation if you owe more than $30,000!
Why Hire Us to Help You with Your Treasury or SBA Debt Problems?
Without our clients declaring bankruptcy or having their homes foreclosed upon, millions of dollars in SBA debts were settled through offers in compromise and negotiated repayment agreements.
AWG Hearings, Treasury Offset Program Resolution, Cross-Servicing Disputes, Private Collection Agency Representation, Compromise Offers, and Negotiated Repayment Agreements have all been used to defend against millions of dollars in Treasury Debts.
Our attorneys are permitted to represent federal debtors across the country before the SBA, the SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service under the Agency Practice Act.
$220,000 SBA 7A LOAN -DOT WAIVER OF ADMINISTRATIVE FEES & COSTS
An SBA 7(a) loan that was referred to the Department of Treasury for collection was personally guaranteed by clients. Treasury asserted that after adding interest and its statutory collection fees, our clients owed over $220,000. By arguing for a waiver of the statutory 28%–30% administrative fees and costs, we were able to negotiate a significant reduction of the total claimed amount from $220,000 to $119,000, saving the clients over $100,000.
$337,000 SBA 504 LOAN – SBA OIC CASH SETTLEMENT
Clients personally guaranteed SBA 504 loan balance of $337,000. A judgment had been obtained against the clients by the third party lender. Before the SBA, we represented clients, and we negotiated a $30k SBA OIC that was approved.
$488,000 SBA 7A LOAN – SBA OHA LITIGATION
Clients personally guaranteed an SBA 7(a) loan. The Department of Treasury was seeking payment of $487,981 from our clients when the SBA forwarded the debt to it. We initially filed a Cross-Servicing Dispute, which was denied. As a result, we submitted an appeals petition to the SBA Office of Hearings and Appeals, asserting defenses of law and providing proof found during the discovery and investigation stage of our services. The SBA ultimately settled the debt for $25,000, saving our clients $462,981 in total.
Can an SBA loan be forgiven?
Borrowers have until the loan’s maturity date to submit a request for forgiveness. PPP loan payments are no longer deferred and borrowers must start making loan payments to their PPP lender if they do not apply for forgiveness within 10 months of the end of the covered period.
How long does it take to get SBA loan forgiven?
Generally, the lender has 60 days to make a decision after receiving a fully completed loan forgiveness application, and the SBA will remit funds within 90 days of receiving the lender’s decision, subject to its review. The lender will let the borrower know how much of the loan will be forgiven.
What happens if I dont pay my SBA loan?
If you don’t make your loan payments, it will default. The terms of your SBA loan contract will determine how long you have to make payments before defaulting. Although generally speaking, you’ll have 90 to 120 days to start making payments Lenders might be prepared to cooperate with you during this grace period.
Do you have to pay back SBA forgiveness loan?
While payments are deferred for the first two years on loans obtained through the SBA’s COVID-19 Economic Injury Disaster Loan (EIDL) program, they must be repaid in full. Borrowers who received a Targeted EIDL Advance or Supplemental Targeted Advance are exempt from making interest payments on the first $15,000 of their loan.