Turn on Your BS Detector
This is a direct warning about at least 1 of my competitors. I don’t want to start a whole thing or a public battle by naming them, but there’s some companies that advertise on Google who are straight up shady. Anyone that tells you they have a 100% success rate (their Google ad actually states this) with SBA loan settlements is lying to you.
There’s no such thing as a 100% settlement record. It’s just not possible. There are too many variables. I’ve had ones that I’m absolutely sure will settle and they get rejected. I’ve had things fall apart for a variety of reasons beyond me control, and it’s disingenuous for somewhat for anyone else to say that they’ve been perfect.
The comical thing about this one particular company is when I was a workout officer, I worked on settlements with them. And I know for a fact that they did not all settle. I know this because I told the owner of the company that I thought he was not telling me the truth. And to quote myself, I said, “are you telling me the truth, or are you telling me what you think I want to hear?”
Your BS detector also should be on when these same people explaining to you how the SBA Offer in Compromise process works. I try to be as transparent as possible explaining to people that this is not a handout. This is not going to be easy. In some situations, I actually cannot help because people tell me they need to keep their business open, to pay their bills.
What you definitely can’t do is sell your business or your business assets to a friend or relative for the purpose of a settlement. In other words, you can’t pretend that you sold the business, settle your debt, and then buy it back later. This is absolutely fraud. Anyone who tells you that it’s a “sophisticated strategy” is trying to fool you into thinking that this unethical practice is how it’s done. I’m here to tell you that it is not how it’s done, and I will argue with anyone who claims that it is the right way to do things.
You must close down your business, sell the assets and then you make a legitimate settlement offer. If people are telling you to find a friend to buy it or start another company and transfer the assets and then present a bill of sale, I would look at that with a very critical eye and see if your BS detector is going off.
Hurry Up and Wait
It’s not a quick process, folks. A lot of people want to submit the OIC and get an answer the next week.
Unfortunately, that’s not the case, especially today, during the time of Coronavirus, it’s likely that the usual 4 – 8 month turnaround will be even longer. I’m telling you folks, there is a tsunami coming, and I don’t know if the SBA is going to be staffed up appropriately to evaluate all these settlement offers.
While you’re waiting, it’s reasonable to want to follow up with your lender. Keep in mind that there’s a fine line between being proactive and following up and being a nuisance. Being proactive means once a month, checking in with your lender to see if they’ve heard anything. Being a nuisance is emailing them every other day to ask them if they’ve heard anything.
You need to be patient and understand there is a process here that needs to be followed because there’s going to be tens of thousands, if not hundreds of thousands of borrowers seeking SBA debt, forgiveness, just like you.
Treasury is Not a Viable Settlement Option for Most Borrowers
The biggest mistake that I hear lenders make is telling nonchalantly borrowers that they can just go ahead and settle with the Treasury. That’s inaccurate. In most cases, lenders inexperienced with the OIC pricess will tell people they’re not interested in considering an OIC, and that the borrowers should talk to the US Treasury.
I’ve written articles about it here, but in a nutshell, the US treasury is generally willing to settle for no less than 70 to 80% of the original balance. The kicker to that is that they would have added a 28% penalty to your original balance. What this means in practical terms is they’d likely be looking for somewhere near 100% of the eligible loan balance, and that would need to be paid at a lump sum of cash.
So like I said earlier, settling with the Treasury is typically not a viable option. How is this applicable to your situation? I’ll tell you. If your lender tries to persuade you not to submit a settlement offer to them because they think that settling with the Treasury is the same as the SBA OIC process, I would encourage you to push back and ask them if they’d be willing to at least forward your offer to the SBA for consideration.
Just taking this simple step could save you tons of heartache down (and money) the road, because once something gets the Treasury, they’re generally not that interested in sending it back to the SBA. I’ve spent a fair amount of time in my life, waiting on hold with treasury. And after a while, I decided I can’t deal with Treasury anymore, first, because a lot of them were unsettling so it wasn’t a good use of my time or a borrower’s money.
Second, most of the people that work there are fairly incompetent. They exemplify government bureaucracy at its finest. If you call five times, you may get five answers from five different people. They don’t have phone extensions. They don’t have email. You have to fax your documents to them. And half the time they ended up getting lost. So all this to say is the treasury, in my opinion is not a viable settlement option. And you must do everything you can to settle through your lender or the SBA.
Put Away the Violin
This is a mistake that I’ve seen frequently from people who have attempted settlements themselves. They send me over the SBA Offer in Compromise form, and when I read it, I just shake my head.
What I end up reading is a a sob story about why the SBA should take pity on them (insert sad tale of woe here) and approve their offer. I know this is harsh, but the truth is that your lender and the SBA don’t care about how much you lost on your investment.
Their job here is to evaluate your Offer in Compromise and to determine if that is the best recovery for them. So they don’t care that you put your retirement funds in to the business. They don’t care that you quit your old job to start this business. All they care about is how much money they can get back from you. And that’s what the focus of any OIC should be. I even had one woman put it this way: the SBA was a giant whale, all she was asking was to let this little Guppy swim away (for $0).
And as I said earlier, there is no such thing as 100% forgiveness. It’s okay to mention that you lost a lot of money, but if you make this the focal point of your offer, it’s unlikely to be approved.
COVID Crisis May Actually Help You
The current environment may actually create an opportunity for you to get this settlement done. The last time we faced the financial crisis was in 2008, and for a 3-4 year period, the settlements came fast and furious. Everyone who had gone out of business and wanted to get it taken care of, worked their way through the process during a time when the chances of getting a settlement approved were much higher than prior to the start of the financial crisis.
Well folks, here we are, again, in the midst of another financial crisis. The SBA knows what’s going on. They paid your loans for six months. They understand that people are really hurting, and therein lies the opportunity.
Yes, you’ve lost a lot. Your business has gone. You’ve lost your investment. You may not even have any income right now, but it also puts you in a prime position to settle this debt today. If you avoid dealing with it now, and your financial situation improves in a few years, it’s going to make settling much more difficult. The best time to settle is when you have very little income, and very little in the way of assets.
Even if you have to borrow the money from friends and family, it’s much better to settle when you’re down and out, especially if your home has pledged as collateral. If you have no equity in your home today, but five years from now there is equity. Guess what? It’s going to cost you a lot more to settle.
You may be reading this and saying, “Of course this guy saying I should settle now, he’s looking for clients!” Certainly I do earn a living helping people through theSBA OIC process, but it doesn’t mean that I’m wrong.
I can tell you that in the years 2015 – 2019, the SBA became very stingy when it came to settlements. So far since November, 2020, I’ve had a fair amount of settlements be approved and I don’t think it’s a coincidence. The SBA is going to loosen restrictions in recognition that people have had a tough go of it, but it doesn’t mean they’re going to give away the store. They still want their pound of flesh, but they’re going to be more reasonable than they have been in a number of years.
I hope these must know facts about the SBA Offer in Compromise have been helpful to you. The process can be confusing and complicated, with lots of moving parts. The big thing about settling the SBA loan is that you have to understand the rules of the game, just like any other game in the world, whether it’s baseball, Scrabble, or chess. If you don’t understand the rules of the game, it will be virtually impossible to win.
2022 Update: The COVID crisis is winding down, but the impact on small businesses will be long lasting. I just got off the phone with a guy who owns a commercial cleaning business. He doesn’t think people will ever go back to the office with the regularity we used to see. His business is 50% of what it was.
Earlier today I spoke with another business owner. He took his SBA loan just prior to COVID, and he’s been playing catch up ever since. He doesn’t think there is any way he’ll ever see the business generate enough revenue to repay his SBA loan every month.
To make matters worse for settlements, the housing market has been absolute insanity in most places. This means that if you pledged your home as collateral, it likely has more equity in it today than it did when you initially took the loan. That’s not a good thing when you’re trying to settle your SBA loan. In 2008, properties in some states like California DECREASED by as much as 50%. That made settling SBA loans as easy as shooting fish in a barrel. These days? Not so much.
If you’d like to schedule a case evaluation, you can select a date and time here.