It’s a common scenario that we’ve seen a number of times. We get an email from an SBA borrower who has closed their business. While they knew that they’d be responsible for the debt since they signed a personal guaranty, they never heard anything from their lender. For this reason, the guarantor procrastinates when it comes to settling their debt in exchange for the release of their personal guaranty.
Has the lender forgotten about them? Has their loan slipped through the cracks? Then, a few weeks, or even months later, a letter arrives demanding payment on the loan. To the borrowers surprise and confusion, the letter is not from their lender, but rather directly from the SBA. Despite a time frame by which the borrower must respond, they take a passive approach. They don’t respond to the letter, and they don’t take the initiative to hire us to get the situation worked out on their behalf.
After two months go by, the borrower receives another letter, this time from a collection agency, and to the guarantors dismay, an additional $5,000 has been added to the loan balance. In a panic, they call us asking for help. We call the collection agency, who are only willing to consider offers on their terms, and they have no sympathy for the borrowers tale of woe. The guarantor is now stuck, as they cannot meet the terms that the collection company is demanding.
What are the lessons to be learned here?
1) If you have defaulted on an SBA, doing nothing and waiting to see what happens can result in dealing with a collection company, whose settlement terms will often be less flexible than if you had dealt with your original lender or the SBA.
2) If you fail to respond to your lender/SBA about settling your debt, you are likely to have thousands of dollars in additional fees added to your loan balance on the file is passed to a collection company.
3) Once your file is passed from the SBA to the Treasury (or a collection company who is working for the Treasury), your window of opportunity to settle with the SBA will be closed.
4) Just because your lender is not calling you or sending you letters, it does not mean you are off the hook. The SBA, US Department of the Treasury, and collection agents will likely be contacting you.