Q: I paid too much for my business. Will my lender/SBA reduce the principal amount I owe so I can afford the payments?
Sadly, no. For 7a loans (which is how most business acquisitions are financed) the only way that the SBA will consider a settlement is after the businesses ceases operations and all business assets have been liquidated (note: 504 loans can be settled even if the business is still open). Some people will seek to sell their assets to a related party (friend/relative/business partner), then buy them back later (see our article on Ethics and Legality of an Asset Dump Buy Back). Unless this is explicitly disclosed and approved by the lender/SBA, it could be construed as fraudulent.
Q: How much will the SBA be willing to settle for?
There is no set formula. Different banks have different policies regarding how much they are willing to settle for. Some don’t have set rules, others take a hard stance and pick an arbitrary percentage regardless of your personal situation. Very often, how much the SBA is willing to approve will depend on the personal financial situation of the guarantor.
Q: The SBA guaranteed 75% of the loan to my lender. That means as a guarantor, I only owe 25% of the balance, right?
Unfortunately, no, you are still responsible for the entire balance. The SBA guarantee has no impact on how much you legally owe. The guarantee ensures that the lender’s financial loss is minimized, but it does not distinguish the debt owed by the borrower or guarantor.
Q: Do I need a lawyer to settle my SBA debt?
No. Settling SBA debt is largely a financial matter. While we’d recommend having an attorney review legal documents, the fact is that SBA settlements often involve no signing of any agreements at all. When engaging someone to represent you, you need someone with a through knowledge of the SBA process (many lawyer’s don’t), and an understanding of the philosophy behind SBA settlement policies.
Q: Will the SBA foreclose on my home?
If there is equity in your home, and you are unable to reach a settlement, foreclosure is a possibility. The best way to avoid such a situation is to get the debt settle prior to the SBA or your lender ever starting the foreclosure process. Most lenders prefer not to foreclose, and are willing to work out payment arrangements to keep you in your home.
Q: If I want to settle my debt, I sell my business assets and turn over the cash to my lender, right?
Sorry, selling the business assets is just the liquidation phase. After the cash from the sale of the assets is applied to the principal balance, only then does the settlement negotiations begin. Settlement discussions can only be had one the business ceases operations, and all business assets have been liquidated (Note: some exceptions do exist).
Q: Why are your fees lower than other SBA workout firms?
I believe my fees are appropriate for the services I provide. While I’m in business for profit, I also feel responsible for the well being of my clients, which means doing the right thing and charging reasonable fees for my services. Rather than charge no fee up front and a whopping percentage on the back end, I charge a reasonable up front fee for time spent, and take a reasonable percentage upon a successful settlement.