Every time my phone rings, I take a quick glance at my caller ID to see what state the call is coming from. I am almost always excited to find out about the callers situation, and how I might be able to help. But there is one exception: when the call comes from Louisiana. Do I dislike the state of Louisiana? No, of course not. But I do tend to sigh when I get a call from the Big Easy, and the reason is simple: many SBA disaster loans were issued after Hurricane Katrina to Louisiana residents.
In a nutshell, SBA disaster loans are really, really, really, really, really difficult to settle. And this is why I don’t like getting calls from Louisiana. I get 2 to 3 calls per week from someone with a disaster loan who is struggling to pay them, and in most cases I turn those people away. Believe me, I’d love to help, but disaster loans tend to not to be conducive to settlements for a few reasons:
1) Disaster Loans Are Almost Always Secured With Homes. In cases where your home has equity in it that is sufficient to cover your debt, there is no chance that the SBA will settle the debt. The logic is simple: if they can foreclose on you and get all their money back, there is no reason to settle.
2) Disaster Loan Terms are Generous To Begin With. Most SBA disaster loans are offer very low interest rates over a long period of time (usually 30 years), so when things go wrong, there is not much that can be done to help. If your payment is $150 per month, and you are struggling to make that payment, it’s likely that payment at any level would be onerous.
3) Disaster Loans Are Typically Issued To Individuals. As a result of going to people who had scarce resources to begin with, asking a person to raise a material sum of cash to settle a disaster loan is always a tall order. If you owe $30,000 and can’t afford a $300 per month payment, it’s likely that you don’t have access to enough cash to make a lump sum settlement offer. In other words, since most disaster loan borrowers have limited financial resources, the chances of raising enough of lump sum to settle are limited as well.
4) The “Powers That Be” Are Arbitrary. More than any other area of the SBA, I’ve found that the SBA Disaster Loan folks rely less on the facts and more on arbitrary thresholds. Unlike the SBA business loan settlements, which heavily consider a person’s financial situation, the Disaster Loan people basically say “we don’t care that you can only afford $1,000, we want you to pay $10,000”. For this reason alone, many disaster loans never have a chance to settle.