Having a failing business sucks. This was never the plan. And for that reason, most people are not at all prepared to wade through the maze that comes with defaulting on their SBA loan. Most of my articles are about stuff that is within your control. Today, I’m going to talk about some of things that are out of your control.
1) Your bank and workout officer – When you first took your SBA loan, you never thought about how your bank would handle a default situation. Even if you did, your banker would have likely not really known the truth, because SBA loan originations are handled by different departments than SBA loan defaults. So really, unless you talk to someone like me who has actual workout experience, you have no way of knowing how your bank will handle a default situation. Some banks rubber stamp approvals without much review, others will put you through the financial equivalent of a colon exam. Even within a bank who is known for being easier to deal with, there can be workout officers who are a real pain to deal with. They ask question after question, even when those mundane questions have no real value. The SBA workout officer is hard to reach, often cranky, cryptic in their responses, and generally clueless. Not all SBA workout people are like this, but whether or not they are is completely random.
2) The SBA Office Your File Resides In – I’ve written about this in the past, but I’ll cover it again here. While one might think intuitively that since the SBA has one standard set of rules (Standard Operating Procedures or SOPs), nothing could be further from the truth. In most cases, the office that would be reviewing your SBA Offer In Compromise depends on two main factors: your location, and loan type. Some offices will make reasonable decisions, while others will put arbitrary minimum percentages on their settlements. So while some offices will settle for 10% of the loan balance, others won’t take a penny less than 50%. So depending on how much you owe, that could mean hundreds of thousands of dollars that you potentially spend or save, all based on dumb luck.
3) Appraisals – If your home has been pledged as collateral for your SBA loan, when it comes time to settle, the bank will need a current appraisal. In many cases, homes appraises for more than what the borrower thinks it’s worth. In some cases, it’s right in line with what the borrower thinks it’s worth. Since the bank is the one who chooses the appraiser, you will not have much control. Many banks won’t even share the actual appraisal with the borrower, making it difficult to find inaccuracies. So if the appraiser values your home at much more than you could ever dream of selling it for, it’s hard to fight them. I’ve had people get their own appraisals, or make lists of repairs that the home needs, but even in those cases, that information has seemed to fall on deaf ears.
