Do You Have SBA Or Other Small Business Loan Debt?
Starting a new business requires an initial investment of capital. In recent years, rather than pulling from savings, people are taking out small business loans often through the Small Business Administration (SBA). While there is nothing wrong with taking out a loan to fund the initial start-up costs or ongoing operating expenses, the first couple of years of operating a business are often unpredictable. Recent economic conditions have made small businesses even more unpredictable, even for experienced business owners.
Accumulating debt in the beginning can be fatal for a small business. And falling too far into debt can accrue insurmountable interest. Instead of letting your debt destroy your small business or declaring bankruptcy, let the lawyers at McCarthy Law guide you through the debt settlement process.
You want to avoid bankruptcy, if at all possible. Declaring bankruptcy destroys your credit and will make it very difficult to get a business loan in the future. The good news is there are several other small business debt relief options that can free you from debt and keep your small business running.
Over the years, we have found that people from all walks of life were deeply affected by the most recent financial crisis that took place in the United States. However, a large portion of those people were small business owners. Not only were these small business owners defaulting on their business credit cards, but they also defaulted on their secured loans through the Small Business Association (“SBA”).
SBA loans are loans that are lent through private institutions but backed by the Federal Government through the SBA. Since these loans are backed by the Federal Government, SBA loans are secured loans that list collateral in the loan agreement so that if you were to default, the lender has the right to recover what is owed through the sale of the collateral. However, if what is owed is more than what the collateral can be sold for – you are still liable for the deficiency. This collateral could be your primary residence, your business assets, your car, etc.
How SBA Debt Attorneys Can Help Eliminate Your Business Debt
Eliminating small business debt is the key to financial freedom and getting the relief needed for you to focus on your business. The lawyers at McCarthy Law negotiate for large reductions in small business debt, including large reductions in principal. By negotiating down the debt to a manageable amount, we help clients settle and eliminate the debt in as few as 6 to 36 months without the need for bankruptcy.
You need to make sure you have an experienced professional to help with this process. Many debt relief companies claim that they can rid you of your debt but are unable to follow through. Having a licensed attorney on your side helps you get the most beneficial deal possible, and you will not be taken advantage of by creditors. Attorneys are obligated to keep your dealings confidential. This is important when dealing with small business debt because you do not want rumors of debt problems ruining your company’s reputation.
What is an Attorney Negotiated Business SBA Debt Settlement?
This process involves working with your creditors to negotiate a reduction in the amount you owe. You will be much better off if you are represented by a licensed attorney in this process. Creditors are more willing to work with attorneys and will likely give you a better deal if you are represented. Also, attorneys are familiar with laws regarding what a creditor can and cannot do when trying to collect a debt. This means that your creditors will be more likely to respect your rights and treat you fairly if an attorney is representing you. More importantly, we send a letter to your creditors instructing them to stop contacting you and direct all communications to us instead.
No small business owner wants to file for bankruptcy. A Chapter 13 bankruptcy can take five years to complete, and you still end up paying back most of the debt. Let the attorneys at McCarthy Law walk you through your options in a free consultation.
What Are Some Solutions to SBA Debt?
If you have $20,000 or more in SBA loan debt and your business is no longer operational, there is a solution. This solution is called an offer-in-compromise. In order to qualify for a principal balance reduction in your debt, the SBA is going to want to see all of your financials and wants to be convinced of the fact that the offer you are making for payment is the best possible offer you can make based on what your financial support.
Once a financial statement, all requested financial documents, and an offer are sent to the lender, both the lender and the SBA must agree to either accept the offer or not. The SBA may provide a counteroffer, or they may simply reject your offer. Due to the fact that the SBA and the lender must agree to the settlement, it usually takes some time to finalize negotiations.
Do not wait until years after your business closes to start thinking about negotiating your SBA loan. You want to negotiate when you have the least amount of assets and the most amount of debt. You need an experienced attorney to help you decide if an offer in compromise is a good solution for you.
Small Business Loan Debt FAQs: Important Things You Need to Know
At McCarthy Law, we pride ourselves on educating our clients and providing answers to your pressing questions about small business loans, loan debt, and finding the relief you need. We’re here to guide you through the complexities of loan payments, refinancing current business debt, and exploring debt relief programs. We’ll start by diving into some of the most common questions for small business owners.
Is a business loan bad debt?
Not all debt is created equal. For many small business owners, a business loan can be a vital tool for growth and development. A business loan with fixed-rate financing for a sound business purpose, such as purchasing fixed assets or expanding operations, can be considered good debt. It helps drive economic development and improves the overall financial health of the business.
However, if loan payments become unmanageable or the funds are not used effectively, the debt can quickly become problematic. This scenario often leads businesses to refinance current business debt in search of more favorable terms. The key is understanding the difference between leveraging debt to fuel growth and accumulating debt that hinders your ability to succeed. It takes risk for sure, but being wise and making calculated and smart decisions can make the biggest difference for your business.
How much debt is okay for a small business?
There’s no one-size-fits-all answer to this question. The acceptable amount of debt varies depending on the business’s size, industry, and revenue. Many small business owners find that maintaining a debt-to-equity ratio of 1:1 or lower keeps their finances balanced. This means that for every dollar of equity, there is one dollar of debt. Engaging in business counseling can help determine the right balance for your specific needs. Sound financial planning and regular reviews of your debt levels will also keep you informed and in control.
Is there a way to get your SBA loan forgiven?
Yes, there are scenarios where an SBA loan can be forgiven. Specific programs, like the Paycheck Protection Program (PPP), offer forgiveness options if certain criteria are met. These criteria typically include using the funds for approved expenses such as payroll, rent, mortgage interest, or utilities and maintaining employee headcounts.
Forgiveness may not be straightforward for other types of SBA loans, but restructuring or modifying loan terms might offer some relief. Explore all available options and consult with legal teams like ours who can guide you through the process of seeking debt relief through appropriate channels.
Can you use a small business loan to pay off debt?
Using a small business loan to pay off existing business debt can be a strategic move. Refinancing current business debt with a new loan that offers lower interest rates or better terms can reduce overall loan payments and improve cash flow. This option is particularly beneficial if you qualify for fixed-rate financing, which provides predictable payment schedules and stability.
How do I know the best way to get out of SBA debt?
Finding the best way out of SBA debt involves a thorough assessment of your financial position and available options. Start by reviewing the terms of your SBA loan and exploring any special programs designed for debt relief. You can negotiate with your lender for modified terms. Fixed-rate financing can replace variable-rate loans, offering more predictable payments. Engaging with a debt relief program or seeking professional advice can provide tailored solutions to your specific needs.
The important thing to remember is that many small business owners have successfully navigated these challenges by staying informed and proactive.