The SBA Rejected My Offer But They Sent A Counteroffer – What’s That?

Introduction

When a small business owner applies for an SBA loan and gets rejected, it can be disappointing. However, sometimes the SBA will send a counteroffer instead of an outright rejection. This means the SBA is willing to approve the loan under certain modified terms. Understanding what a counteroffer is and how to respond can help business owners navigate the SBA loan process.

What is a Counteroffer from the SBA?

A counteroffer is when the SBA proposes different loan terms than what the borrower originally requested. For example, if a business asked for a $100,000 loan over 10 years, the SBA may counteroffer with a $75,000 loan over 7 years. The counteroffer acts as a rejection of the original loan request, but also presents new terms the SBA would be willing to approve. Legally, a counteroffer terminates the original offer according to contract law[17].

Common Reasons for an SBA Counteroffer

• Collateral – The SBA may request more collateral to secure the loan.
• Loan amount – The SBA may approve a lower loan amount than requested.
• Interest rate – The SBA may offer a higher interest rate.
• Loan term – The SBA may shorten the repayment term.
• Payment amount – The SBA may require higher monthly payments.

The SBA carefully reviews loan applications and makes counteroffers when they believe the proposed terms are not fully secured or have a higher risk of default. Their goal is to modify the terms to create a loan that the borrower can realistically repay.

Responding to an SBA Counteroffer

When presented with a counteroffer, the borrower has three options:

1. Accept the counteroffer – This creates a binding SBA loan contract under the modified terms.
2. Reject the counteroffer – This terminates the loan application process with no loan approved.
3. Propose new terms – The borrower can suggest alternative terms and try to negotiate further with the SBA.

Some key things to consider when responding:

• Can you afford the monthly payments? Make sure the counteroffer payment is realistic for your budget.
• Are you comfortable with the proposed collateral? Only pledge assets you are willing to risk.
• Do you need the full loan amount? Consider if a smaller loan could still work.
• Is the interest rate affordable? Compare to other financing options you may have.

Analyze the impact of the counteroffer terms and negotiate if you believe you have a reasonable case for different terms. Keep in mind the SBA wants to provide a loan you can successfully repay[3].

Appealing an SBA Counteroffer

If negotiations fail and you have been unable to get the SBA to approve desired terms, there is an appeals process available. Steps include:

1. Request reconsideration from the SBA loan officer and clearly explain the rationale for alternative terms.
2. If reconsideration is declined, appeal to the SBA district director in writing within 30 days[13].
3. As a last resort, submit a written appeal to the SBA Administrator within 30 days if declined again[13].

When submitting appeals, be professional and focus on factual arguments why you deserve reconsideration. Provide supporting documentation whenever possible. While the appeals process can be lengthy, it does give borrowers recourse if they feel the SBA counteroffer is unreasonable.

Getting Help Responding to an SBA Counteroffer

Navigating SBA loan counteroffers can be complicated. Working with an accountant, lawyer or SBA lending expert can help you understand your options and negotiate effectively. They can review the proposed terms, run cash flow projections, and advise if the counteroffer realistically aligns with your business finances. Their expertise can greatly improve your chances of getting approved on terms that work for your small business.

Key Takeaways

• A counteroffer from the SBA proposes modified loan terms versus what you originally requested.
• You can accept, reject or attempt to negotiate the counteroffer terms.
• Appealing a counteroffer is possible if you have reasonable grounds.
• Seeking professional assistance can be very beneficial when responding to a counteroffer.

With the right information and preparation, small business owners can navigate SBA counteroffers successfully. Understanding this possible outcome in the loan process is key to developing an effective response. Doing so will improve your chances of getting approved for SBA financing on terms your business can manage.

References

[1] https://www.sba.gov/document/information-notice-5000-20007-review-agreements-exception-affiliation-based-economic-dependence-business-loan-programs

[2] https://www.sba.gov/sites/default/files/2022-07/SOP_50_57_2_1.pdf

[3] https://www.lendingtree.com/business/sba/pros-and-cons-of-small-business-administration-loans/

[13] https://www.law.cornell.edu/cfr/text/13/123.13

[17] https://www.law.cornell.edu/wex/counteroffer