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The title of today’s article is SBA default knowledge is power. I want to talk to you about the questions that clients often are afraid to ask but think to themselves, and sometimes they’ll even come out and ask them. The main question is, can you settle your SBA loan yourself, and why would you need someone like Distressed Loan Advisors?
So you default on your loan, you close your business and the bank says “make us an offer”. At that point you have a decision to make. You can try to make a settlement offer on your own, or you can try to hire somebody like me. And let me preface this by saying, a lot of what I’m saying doesn’t just apply to me. It applies to anyone who offers advice.
Experts Are All Around Us
There’s plenty of attorneys offer advice on plenty of things. And advice is not even really restricted to white collar type stuff. I mean, I just had a refrigerator that broke. I had the decision at that point. Do I try to order the parks and fix it myself or do I bring in a professional? Hiring somebody to deal with an SBA loan default situation is no dissimilar, although obviously the stakes are significantly higher than a broken refrigerator. In most cases you’re talking about minimum $100,000, on average, I’d $300,000 to $500,000.
Clearly, this is a decision that can really impact your financial future. You know, the difference between settling a half a million dollars and not could be the difference between, going on to the next business venture, losing your home, and avoiding legal action. And so it’s an important question. Can you do this yourself?
Should You Go It Alone, Or Call For Backup?
Of course, you do have the option of attempting to prepare and negotiate your OIC all by yourself.
And I’m sure there are people out there who have at one time or another tried to settle themselves. It’s worked out just fine. No problem. And that’s fine. But here’s how I look at the entire process and I’m going to use an analogy:
I’m having my basement redone. So it’s a, right now it’s just an ugly mess. And we’ve decided that we’re going to finish it. We need a place for our kids to play when they have friends come over, or just when they’re being loud. It’ll give a lot of extra space when we’re hosting. So we’ve decided that we’re gonna, finish it. Well, how are we going to do that? Are we going to hire somebody to finish it or am I going to do it myself?
Do I know how to hang drywall? Do I know how to frame stuff out? Do I know how to handle electricity? The answer to all those things for anybody that knows me already knows this, but the answer is a resounding no.
And so the next question is, well, okay, I don’t know how to do it today, but can I learn, can I go online? Can I watch a YouTube video on how to frame up my basement? I probably could watch a YouTube video on how to do dry wall. Could I read articles on, you know, this old house from Bob Vila about how I can spackle? Of course, I can do all of those things. So it’s not that I’m incapable of learning. The big question is this, do I want to take the risk of screwing it up and then having to deal with whatever the fallout is?
My Basement Is Low Stakes, Your SBA Loan Is Not
When it comes to finishing my basement, the stakes are pretty low, right? If I hang a sheet rock and it’s not straight, worst case scenario, I pay somebody else to come in and do the job. Right? Or if I have a seam and the spackling that doesn’t look great, I can hire somebody to come in. At the end of the day, what my wife and I decided was, of course I’m not going to do it. I don’t have the skills to do it. I don’t have the time to do it.
Doing anything for the first time, there’s going to be a learning curve. It’s going to be stressful. You’re going to make mistakes. And so I don’t want to go through the learning process. I don’t want to make all the mistakes that I’m sure every builder has made at one point or another because quite honestly, I can hire somebody who’s done this 100 times before who will do it faster and better than I ever could.
They know exactly how to plan it out. They know exactly what the issues are that they’re going to come into and they know how to overcome them. And so building that basement is not that dissimilar to your decision as to whether or not to hire an SBA loan default expert. So when we go into this process, there’s going to be a lot of stuff that you don’t know. And so yeah, you can certainly fill out the paperwork in the same way that I can certainly go buy the materials to build my basement. But the way in which you fill out that paperwork is very similar to the way in which I would get the job done in my basement. There’s a right way to do it. There’s a wrong way to do it. And there’s a gray area in between, which maybe is good enough, but not quite right.
High Stakes
And so the issue that you have to deal with here is if you get it wrong, it’s going to cost you potentially, you know, tens or hundreds of thousands of dollars. And so the argument that I always make is, do you want somebody working on this for the first time or for the 100th time? Because yes, filling out a form seems easy. But people have questions about this stuff all the time. Do I show my retirement accounts? How do I show my income? What expenses do I put in there? And what exactly is the SBA looking for anyway? So even if you fill this out, you don’t really have a good idea of what matters to them. What do they see as things that really you should be ponying up? And what are things that they don’t particularly care about?
Blackjack and OICs
When it comes to doing an Offer In Compromise, it’s all about the unknown. And when you hire somebody who has done this before, you’re minimizing the unknown. It’s really about hiring somebody who’s been through this many times before that.
And it doesn’t, by the way, it doesn’t guarantee that it’s going to settle because there’s no one can possibly guarantee that there’s too many factors involved, but it will give you an advantage over somebody who has no experience at all. And that advantage, think about playing blackjack, the difference between a card counter and everybody is 2-3%. But that’s the difference between losing your shirt and being a professional blackjack player.
So having that edge can translate to real dollars, both in blackjack and in offering compromise. So yeah, that’s, that’s my analogy.
I’m Biased, But That Doesn’t Make Me Wrong
Obviously I’m biased, but I believe in what I do. I’ve helped a lot of people over the years. And I think it’s legitimately valuable to be able to be on someone’s side, advocate for them when they’re not really sure what narrative they should be focusing on. Now some people will say, “Why would I need to hire you? My bank is actually very nice. They’ve been really cooperative”.
And my answer to that is always, I’m sure they are. And you know what, bankers are people too. You have some people who are really, really nice. Some people are kind of indifferent, some people who are really terrible to deal with.
And so if you’re lucky enough to deal with somebody who is nice and helpful, that’s great. But keep one thing in mind here. Your banker’s role is to protect the bank and maximize their recovery. So that means they’re not there to give you advice with your best interest in mind. They’re there to give you advice to benefit them.
If you go to court because somebody suing you, you don’t use the other guy’s lawyer. You get your own. And so in this case, if the bank is employing this individual, that individual works for the bank. And so the only way that you’re going to know that somebody advocating for you is if you’ve retained them. It’s certainly possible that the bank is doing right by you. But then again, how do you know? And that’s the thing, the unknown here is so great and there’s so much value in knowing if what they’re telling you is accurate or not. So that’s why I say knowledge is power.
It’s About More Than Logic, It’s Understanding THEIR Logic
Here’s another common thing I hear: If the bank isn’t going to get a full recovery from me, I think I can rationalize what constitutes a reasonable offer. Can’t I? My answer to that typically is yes, there is a certain amount of logic, but there’s also a certain amount of logic that only applies to the SBA. And what I mean by that is they have their own way of thinking and looking at things. And so just because you look at something and say like for example, I recently had a client who puts aside a ton of money for his 401k and he said, “ I’m in my fifties and I have no retirement savings. So anybody would realize that, you know, that’s not a discretionary item for me. That’s something I really have to save for. Otherwise I’ll never be able to retire. And that’s a, it’s a very logical position to take”.
But as somebody who’s done this a lot, I did this for a bank and now I do it for clients for the last 10 years. I will tell you very frequently lenders will look at a retirement account contribution and consider 401K savings to be discretionary. It’s admirable that you want to save, but you have a legal obligation to pay us. And so the bank thinks THEY should be the priority.
So, things like that little nuance about how they think those insights is important. I also just want to note that in a lot of these cases, there’s not necessarily a right and a wrong, it’s just how they look at it.
Conclusion
And that’s really the value here. It’s understanding how they’re going to look at it so that we can make an appropriate offer. So that’s where I’m coming from with all this stuff. This SBA default is a sticky wicket. The more you know about the process, the more you understand about how the SBA thinks, the more likely it is that you’re going to be successful with your offering compromise. Accessing as much knowledge as possible is only going to benefit you because if you go in blind, just fill out the paperwork and arbitrarily come up with a number, the chances of that being approved are so much lower than if you bring somebody in who has experienced with this helps you put together the personal financial statement in such a way that it clearly shows what your financial situation is and then makes an based on that.
