Having been an SBA consultant for a while, I’ve come across many different lenders. They run the gamut from the smallest of community banks to the largest banks in the universe. There are hundreds of banks, and with that come a number of different philosophies when it comes to loan settlement. Despite SBA’s settlement protocol and policies, the first issue I always want to tackle is whether my client’s lender will even consider a settlement. After all, if a bank won’t settle regardless of the situation, there is little point in engaging my services. The reasons why a bank chooses not to settle:
Too much equity in your home. If you pledged your home, and there is enough equity in it to repay the loan in full, it’s unlikely that your lender will want to take a short payoff (the SBA would concur with this stance).
The business is still open. Many lenders don’t like the idea of losing money on a loan while a borrower stays in business and continues to benefit financially from the business. Either you stay open and pay the loan in full, or you close and try to settle. (Again, the SBA concurs with this stance).
They Think All Borrowers Cry Wolf. Many lenders are tough as nails when it comes to dealing with defaulted debt. While some lenders will assess your financial situation and make concessions based on what they see, others choose to litigate and obtain judgments against the borrower and personal guarantors. The theory behind the litigation is that debtors tend to stretch the truth about how dire their financial situation is (ie “cry wolf”), and only when they have their bank accounts levied, wages garnished, or home encumbered will they get serious about settling.
You Are One Many Customers. In the current economy, many loan workout departments are completely overwhelmed by the number of delinquent loans they have to deal with. In such cases, some bankers will just choose to refer to matter to their attorney rather than dealing with the paperwork and effort involved in an SBA loan settlement.