The US Small Business Administration (SBA) is a US federal agency. It provides support to small business, with the stated mission being “to maintain and strengthen the nation’s economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters.” One of the most direct ways the SBA helps entrepreneurs is by issuing small business loans.
Unfortunately, an SBA Loan can end in the borrower not being able to repay that debt, just like an IRS debt. If that is the case, the SBA has a process to go through to file for an “Offer in Compromise” (OIC). Note that this only can happen after the business has been liquidated. Similar to the Internal Revenue Service’s OIC, the SBA OIC is an agreement to pay off the debt for less than the original amount owed. However, there’s reasons why you should be more cautious in taking this step.
You Only Get One Shot At an SBA Offer in Compromise!
See our short explanation in this video.
When filing with the IRS for an Offer in Compromise, it is easier to do it yourself, and the IRS is more forgiving if you need to re-file. This is not the case with the SBA! When you file an SBA Offer in Compromise, you get exactly one chance. If it is not approved, you do not get another chance to submit a second Offer in Compromise.
In general, it is not advised to try to handle an SBA OIC on your own.
SBA Loan Delinquency vs. Default
When you are the borrower of an SBA loan, this may result in delinquency and default. There is a difference between the two.
In an SBA loan Delinquency, you are falling behind in payments. You may have missed making complete payments, or had a few payments go past-due.
In an SBA Default, the loan is ruled to be in default by the lending bank. This of course only happens when the SBA loan has been in delinquency, for at least some length of time. Once the loan has been declared in default, this triggers the legal collections process.
Therefore, not all SBA loans in delinquency can be counted as in default. There still may be time to make arrangements to avoid going into default.
Consult with an attorney if you are unsure what to do with your SBA loan
Consultation is free. If we cannot help you, we’ll tell you and point you in the right direction.