I had a friend in college who really liked Kenny Rogers’ music. In particular, the song called “The Gambler”. We all know how it goes…..you gotta know when to hold ’em, know when to fold ’em, know when to walk away, know when to run…
Well friends, the same can be said of an SBA Offer In Compromise. I suppose an explanation is in order here. When a borrower attempts to settle an SBA loan, whether it be a 504 loan, a 7a, or a patriot express, there a multitude of factors that contribute to whether a settlement will be successful. There are some situations when a settlement is possible, and some where a settlement is unfortunately NOT possible. If you don’t know who an SBA OIC is evaluated, it can be hard to know the difference. Therefore, it can be hard to know when to argue with the bank, and when to let it go. In other words, you won’t know when to hold ’em, and know when to fold them.
Let me give you an example of a client who didn’t know when to fold them (i.e. give up on the idea of settling). This client who got stuck with an SBA offices that has arbitrarily decided that they won’t take less than 50% of the loan balance (not all SBA offices are like this), regardless of the circumstances. They had submitted 3 or 4 offers to the SBA before they decided to reach out to me. I knew the workout officer at the SBA they had been working with, and he is actually know one of the nicer, more competent, workout officers employed by the SBA. I knew it wasn’t him blowing smoke. The bosses in his particular office have decided that regardless of the sob stories that are lobbed their way, there will be no settlements for less than 50% of the loan balance. I knew this to be true because I have been through the OIC process with office a bunch of times. But my clients wouldn’t accept. They wanted to continue to send paperwork to prove that they could not afford 50% of the loan balance. I reiterated that the decision was NOT due to the fact that SBA believed they could actually pay 50%. 50% is an ARBITRARY minimum. And when you start putting in arbitrary minimums, it becomes pointless to continue to attempt to prove that you can’t afford it. To be blunt, the SBA doesn’t really care why you can’t pay 50%. Either you can pay it, or you can’t, regardless of your circumstances. So in this case, I told my client that it was time to fold them. They didn’t want to accept that, and we kept going in circles about why submitting more bank statements and P&L statements wasn’t going to change the decision.
A banker I worked with in my early days used to tell her clients, “there are certain things I can do for you, and there are certain things I can’t do.” What she meant by this was that she would do everything in her power to help, but at some point she was going to restricted by the parameters of the “powers that be”. The same goes for me as your SBA workout consultant.
You may be wondering what I can do, and what I can’t do when it comes to settling your SBA loan. I guess a better way to phrase it would be this way: there are certain factors or circumstances that sometimes exist that NOBODY can overcome. Like what?
– A piece of real estate that was pledged as collateral and has enough equity in it to cover the entire loan balace. Sorry, this will not settle. If the bank can get all their money back via foreclosure, they have no incentive to settle.
– When the guarantor(s) clearly have the ability to repay the loan in full. It’s important to note that settlements are based on financial hardship and/or lack of ability to repay the debt over a reasonable period of time. In other words, the SBA won’t settle for the sake of settling.
– When the file has been referred to the Treasury, and owes a significant sum of cash. Like the SBA office I described above, the Treasury has arbitrary minimums as well. 3 to 4 times a week, I get calls from people who owe several hundred thousand dollars, and the file has been referred to the US Treasury. I tell them right off the bat that the chances of settlement are very low, as they would need to be offer a 6 figure lump sum in order to have any chance at a settlement. For most people, this is very unrealistic. If they had that kind of cash, they would not have defaulted on the loan to begin with!
I certainly never expect a borrower to know the ins and outs of the process, so it can be really hard to know when to push ahead, and when to accept that a loan just won’t be able to settle. I always welcome questions about these matters, so drop me a line!