(Distressed Loan Advisors offers expert advice about SBA loan modifications and the Offer In Compromise process, and can be reached at JasonTees.com)
In this rough economy, the SBA has encouraged lenders to be as flexible as possible in order to help small business owners make it through to the other side. In most cases, the flexibility will come in the form of a loan deferment. While the SBA wants lenders to be flexible, the lender still needs to have reason to believe that your business will survive if relief is granted.
There are a few key factors that your lender will look at when determining whether you qualify for a deferment:
- Cash Flow. When you think of cash flow, think of the 3 bears. Can’t have to little (they’ll think things are so bad you are beyond help), can’t have too much (they think you are crying wolf and don’t really need it). Cash flow needs to be juuuuust right. In other words, you need to demonstrate that you can’t make your regular payments, yet have enough cash flow to make payments under the terms of your deferment.
- Repayment History The idea here is that your lender wants to help borrowers who have been making an honest effort. Even if you can’t make your full payment, have you at least been paying what you could? Were you making regular, on-time payments when times were good? Your lenders wants to help a business that has shown that its committed to honoring their debt commitment. The repayment history is a great indication of your commitment.
- Responsiveness If your lender asks for documentation within 2 weeks, that means you should get it to them within 2 weeks. Seems simple enough, right? You’d not believe the number of borrowers who lollygag when it comes to getting their lender a complete deferment application package. In many banks, once the deadline for documentation passes, you will be automatically declined for a deferment, and be scheduled for liquidation. In other words, they will shut you down and sell your stuff.
- Collateral In most cases, the collateral situation was established at loan inception. However, it will factor into how aggressive your lender will get, and how quickly it will happen. If your $150,000 loan is secured with $10,000 worth of equipment, a lender will be more apt to try and help you out since they are otherwise looking at a sizable loss. On the flip side, if the lender has collateral that is worth more than you owe, they may be quick to move into liquidation mode if they don’t believe your business has a chance to succeed. In his situation it is vitally important for you to be ultra-responsive to your lender.