I submitted an offer several months ago for a client. This approval SHOULD be a slam dunk approval. He is unemployed, has limited non-protected funds (ie outside IRA and 401Ks), and the business has nominal assets. The bank approved it without incident, realizing that the SBA instructions for an OIC state that an offer should bear a reasonable relationship to the amount recoverable through enforced collection. In other words, if the offer looks similar to the amount you would expect to get through wage garnishment or levy of assets, they should accept it. I’ll repeat that: THEY SHOULD ACCEPT IT!
I got an email yesterday from the bank. The SBA turned it down for a number or non-sensical reasons:
1) The amount offered is less than 10% of the amount owed. Yeah, and? I have seen many of these. That’s not a good reason for a decline. There is no rule that states the offer must be a specific percentage of the loan amount.
2) Credit score is too high. If a persons only debt is the SBA debt (which isn’t reported on credit most of the time), of course the credit score could be high. Perhaps they are implying that with such good credit, he could go borrow some money. Right, apply for a loan when you have NO INCOME?
3) Bank made no effort to work out the loan via loan modification. What is this, a joke? The guy had no income, where do you want the money to come from?
All of these excuses not to settle are bogus, and not at all consistent with prior decisions I have seen. Granted, he does have sizable retirement accounts, but those cannot be levied. So if the new guy who reviewed this understood the parameters set by his own employer, we would perhaps have gotten a different answer. Our next step is to push back on this decision, and explain point by point why the new guy at the SBA doesn’t quite get it yet, and hopefully they will speak with someone with a little more experience who will tell him/her that yes, the SBA takes deals like this because if they don’t, the SBA is unlikely to ever recover anything.