14A — June 9 - 22, 2017 — Creative Financing — Financial Digest — M id A tlantic
Real Estate Journal
www.marejournal.com
C reative F inancing
By Barry A. Furman, Esquire, Kaplin Stewart Compromising an SBA loan
B
usinesses and indi- viduals who are un- able to pay a Small
SBA is final and conclusive on the Borrower, the SBA and the bank that made the loan (“Lender”). The circumstances under which the SBA will approve an OIC, however, are narrow and the rules for submitting an OIC are strict. The SBA will generally not consider an OIC if the business is a going concern. Whether the loan is secured by business assets or real estate, the SBA will generally require that the collateral be liquidated before the SBA will consider an OIC. In the case of a loan made
to purchase real estate for a real estate business, the go- ing concern rule may be more easily satisfied than a busi- ness that has not yet closed its doors. Compromise of a going concern, however, may be ap- proved if the viability of the business is at stake or liquida- tion of collateral commenced. An OIC must first be sub- mitted to the Lender since SBA loans are made by banks, not the SBA. Rather, the SBA is the guarantor of payment to the Lender. The OIC must be submitted on
SBA Form 1150 together with a completed financial state- ment, generally Financial Statement of Debtor, SBA Form 770, and fully substan- tiated with documentation. The Lender must approve the OIC before sending it to the SBA for approval. Factors that will be con- sidered for acceptance of an OIC include the following: the Borrower’s ability to pay; ap- plicable state and federal ex- emptions; and cost and time that would be required to collect through enforcement
mechanisms. Hardship may also be considered. In the case of an individual Borrower or guarantor, personal health, age and economic situation will likely be considered for hardship. Generally, an OIC will not be accepted unless it reflects the Borrower’s ability to pay and should be in an amount that the Lender/SBA could re- cover in a reasonable amount of time through enforcement mechanisms. An OIC will not be accepted if the Bor- rower can pay its obligation in full through an installment agreement or if acceptance would harm the integrity of the SBA loan programs. These factors are similar those considered by the IRS when reviewing an offer in compromise. In the case of loans made under Section 7(a) of the Small Business Act, the Lender has the sole respon- sibility for conducting all liq- uidation activities. Generally, the Lender has unilateral authority to take all neces- sary action to liquidate the loan. All substantive Lender liquidation activities and decisions must be justified and documented to obtain the SBA’s written approval of the OIC. Submitting an OIC does not ensure that it will be ac- cepted. Rather, it begins a process of evaluation and ver- ification. Generally, an OIC that reflects the Borrower’s ability to pay will be accepted if the information required is submitted and substantiated and includes an explanation of financial hardship. Barry A. Furman is a principal with Kaplin Stewart. n CronheimMortgage secures a cash-out refinance Davenport , IA — Cronheim Mortgage se- cured a cash-out refinance in the amount of $14.5 million for Village Shopping Center in Davenport, Iowa. After ac- quiring the property in early 2014 - only 70% leased and in need of re-branding - the borrower completed a full cosmetic upgrade, stabilized near-term lease rollover and brought in new tenants in- cluding a new anchor, Ross Dress for Less. n
Business Ad- ministration (“SBA”) loan may be able to pay less than the full amount o f the indebt- e d n e s s i n set t l ement
Barry A. Furman
of the Borrower’s obligation. This is referred to as an offer in compromise (“OIC”). An OIC that is approved by the
Firmly Rooted in the Law and in the Community We are well grounded in every facet of real estate law, from acquisition to construction. We are committed to serving the needs of our clients and our communities.
Kaplin Stewart Attorneys at Law
Contact: Barry A. Furman • bfurman@kaplaw.com 910 Harvest Drive, Blue Bell, PA 19422-0765 • 610-941-2529 • www.kaplaw.com Visit our Real Estate Blog: www.philadelphiarealestatelawyer.com Visit our Construction Blog: www.pennsylvaniaconstructionlawyer.com Other Offices: Cherry Hill, NJ 856-675-1550& Philadelphia, PA 215-567-3120
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