QUESTION
What are my options in if I don’t want to pay the Small Business Administration loan?
Asked on Oct 08th, 2012 on Bankruptcy - Michigan
More details to this question:
I enlisted a business partner to join me in purchasing a franchise business. Our intention was to quit our jobs to run the business. We each signed the Franchise Agreement. We started an S-Corporation, with my partner as the VP and I, as the President (51% ownership). We signed for a $70,000 Small Business Administration (SBA) loan. We signed a commercial lease for the retail location. I fulfilled all obligations to get the business opened. Two days after our Grand Opening, my partner refused to quit her job and join the business full time. She did work part-time (about 20%) while I put in very long days, many unpaid, to cover the other 80% to get the business off the ground and keep it running to pay the bills/loans/lease. It is now six years later, and our SBA loan is almost paid off. I have notified my partner that I am not going to renew the lease and will not continue in the business. She does not intend to keep the business. We are trying to sell, but it did not make any money, so we will probably just close it. I have made it clear that I have no obligation to pay the remainder of the SBA loan, as my time has paid off my share, but she insists my legal signature obligates me to pay half. There will be about $5,000 left to pay. Unfortunately, we did not have a partnership agreement, just a verbal commitment.
5 ANSWERS
Bankruptcy Attorney serving Phoenix, AZ
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Law Office of D. L. Drain, P.A.
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It appears that your only options will be to pay the debt or file for bankruptcy. But please understand that filing for bankruptcy is a very complicated process. It is wise to talk to an experienced bankruptcy attorney before deciding to take this important step. Most Arizona bankruptcy attorneys offer a free consultation about the basics of bankruptcy.
Answered on Oct 15th, 2012 at 2:23 PM
Business Law Attorney serving Bingham Farms, MI
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James T. Weiner, P.C.
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Unfortunately you are on the hook to pay the loan.. legally.. you can sue your business partner for not putting in the time according to your agreement.. why did you not do this before contact an attorney.
Answered on Oct 11th, 2012 at 2:21 PM
Trial Practice Attorney serving San Diego, CA
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Bagula, Riviere, Coates and Associates, LLP
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You have a right of action against your partner. Since you have paid the lion's share of the loan and this was not the agreement, you can raise this with her. The lack of a signed agreement is unnecessary in the event that promises were made by your partner without any intention to perform.
Answered on Oct 11th, 2012 at 2:01 PM
Appellate Attorney serving Grosse Pointe Farms, MI
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Musilli Brennan Associates, PLLC
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Legally, you are jointly liable for the remaining debt. You should be engaging and attorney to determine whether or not it would be wise and economical to sue your fellow equity holder for her contribution, unmade.
Answered on Oct 11th, 2012 at 1:57 PM
State law (Uniform Partnership Act) governs if you had no partnership agreement. Whoever signed the SBA loan is liable to the SBA. The individuals who signed a personal guarantee (if applicable) are liable. For example: If both of you signed a personal guarantee, then each of you are probably liable for the entire amount. In summary, it appears that you are liable to the SBA for one half. You may have a claim against your partner for unjust enrichment (i.e. you donating 80% versus her 20%).
Answered on Oct 10th, 2012 at 1:00 PM