As an entrepreneur and business owner, it can be heartbreaking when your business doesn’t work out the way you’d dreamed. If you’ve been involved in the SBA loan program, you also may be anxious about the SBA loan repayments that you now can’t afford.
It’s true, SBA loan forgiveness does exist. However, it’s not as simple as most borrowers think. Although it is possible, it’s certainly not a given, so expecting to waltz in and make a settlement or have your SBA loan forgiven is a fantasy.
However, if you’re serious about pursuing the route of SBA debt forgiveness, it’s wise to seek advice. A professional SBA loan advisor knows the ropes — not just the ins and outs of the paperwork, they know the differing standards between financial institutions and the nuances in the battle.
Doing it yourself is possible, but it’s hard. You may think you’re making savvy choices to save you and your company, but you may be making one of these 6 common SBA loan forgiveness mistakes, without even realizing!
Moving Assets to Shelter Them from your Bank and/or the SBA
When you’re facing a debt that seems insurmountable, it can be tempting to cling on to the few possessions you do have. When the bank or the SBA reach out to offer a compromised payment, they will do so having made sure that your equity and assets can’t pay off the debt.
Those with equivalent assets to pay off the debt are not eligible for SBA loan forgiveness. This may tempt you to hide your assets or move them to other places so they can’t be assessed by your bank or the SBA. This is an unwise decision.
The bank and SBA have very stringent methods for finding assets. They will look for everything from joint property to valuable collections, from business assets to jewelry and furniture. If it is found that you are uncooperative, you could be reported to the U.S Treasury who will subsequently trigger enforced collection.
Assuming the SBA Dish Out Loan Forgiveness in Every Case
The idea that someone can just wave away your debt with an SBA debt forgiveness wand is really magical and comforting. Unfortunately, it’s a fallacy. The SBA does not exist to simply write off the debt.
The SBA has strict rules for even considering a case. Firstly, if you’ve put up collateral that could cover the debt, then they take the collateral first. So if you’ve got your family home at $500K up against a $100K debt, you may be forced to sell or remortgage.
Secondly, if you have assets that can cover the debt, they’re coming for those too! The SBA only ever considers debt forgiveness if you don’t have anything to pay back the loan. If you have cars, properties, jewelry, clothes, furniture, cash, securities, patents, copyright licenses, etc – they’ll expect you to use all of these methods to try and raise the capital to pay the loan (once you have permission).
Even if you do qualify, that doesn’t mean it’s a given. There is a labyrinth of procedures and battles that need to be fought to win the war. These vary depending on the SBA branch you’re working with and the financial institutions involved. This can be a minefield if you present yourself wrong — that’s why having a professional SBA advisor helps!
Simply put, the SBA won’t enter negotiations if you have the money — in whichever way you can raise it — to pay the loan in full.
Selling Business Assets Without Permission
That’s right, as odd as it seems, you can’t just sell your business assets to raise capital for your loan. If you do this, you can seriously damage your chances of getting a settlement through an Offer in Compromise. You need to have permission from your bank or financial entity before you can sell off the assets.
The reason is that the bank wants to make sure they have tabs on what you own to pay back the loan if you can. While some people sell off the assets as an honest mistake “Sorry sir, I was just trying to raise some pennies to pay off my loan!” — others are trying to squirrel away cash from the business before the bank knows.
The SBA does not make light of selling your business assets. If you’re found to have done this, it can be an immediate red light on any form of SBA loan forgiveness.
Misunderstanding What You Signed Up For in the First Place
People get it twisted — they think an SBA loan is a way to take out a loan and have it paid back by the SBA if you can’t afford it. WRONG. Dangerously wrong.
The SBA does not issue loans. The small business loan comes from a bank or financial entity, who are approved by the SBA. The SBA then provides a personal guarantee to the bank. This means that the SBA guarantee they will pay back between 50-75% (pre-agreed) of the loan to the bank if the borrower defaults on the loan.
This DOES NOT get you off the hook of the loan. The SBA now takes on the responsibility of retrieving funds from you. This is where loan forgiveness may or may not come into play.
Hiding From Your Lender
When the going gets tough, the tough gets going, right? Running away is the easiest option when those SBA loan repayments get far too high. The problem is that burying our heads in the sand doesn’t make the debt go away.
Instead, we have to face it head-on and be prepared to do what’s necessary to settle it. If you don’t, you could be faced with legal repercussions and you reduce your chance of ever settling the debt — leaving you with a lifelong struggle to repay the full amount.
Dire financial situations get us all in a frenzy because it can be frightening when we’re faced with the loss of everything. This can cause us to get angry if we feel like our lenders or the SBA aren’t helping us. This brings on the ‘caged animal’ feeling — backed against a wall, you feel your temper rising when the lender isn’t working toward your favored outcome.
Getting aggressive with anyone — in real life or in an SBA loan forgiveness situation — does not result in open helpfulness. Instead, getting angry with staff will only lead to them feeling defensive, which puts a barrier up in the negotiation immediately.
As ex-FBI negotiator and business coach, Chris Voss, explains — negotiation only happens when we collaborate, it doesn’t happen with brute force. We need to find common ground and work together to both feel as though we’re winning, or the pushback creates walls.
Speak in a calm and clear tone, while staying confident and authentic. Being open and honest will trigger a genuine conversation where you can work with the institutions to find a resolution that helps. If you’re more centered and collaborative, you’re more likely to be heard when it comes to loan forgiveness processes.
Again, it’s worth mentioning that the right tone and language skills are integral to ensuring that the deal is settled fairly. While staying calm is important, you want to get the best settlement possible without being a pushover. As Alan Weiss, consulting coach and author of ‘Million Dollar Consulting’, makes clear — language is an essential tool for making successful deals.
It is possible for you to learn how to approach the SBA and banks, however, it’s a skill that takes years to hone. Having a top-notch SBA loan advisor puts that feather in your bow, as they’re trained to handle these interactions effectively and harmoniously.
Letting it All Fall to the SBA
If you’re going through an SBA loan forgiveness procedure, the SBA wants to make sure you’ve tried to settle debts with all your lenders. They don’t like finding out that they’re the only lender taking the hit when you can’t pay back your loan.
It works in your favor to try and settle all your other debts as well, offering cash sums. That way the SBA doesn’t feel like all your money is going elsewhere, while they take the bullet on your SBA loan default.
Sloppy and Incomplete OIC Package
For some reason, people aren’t good at filling out the paperwork. Maybe it’s because the language is a little tricky and jargon-y, or perhaps it’s because they’re anxious about the whole process. Often it’s because the internet is full of conflicting information on how to fill in the documents.
Either way, many people make mistakes when filling out the paperwork. Frankly put, neither the SBA nor the lender will consider applications that are unreadable or don’t make sense, or are incomplete. You’ll be surprised how many people are rejected due to sloppy errors and illegible handwriting.
Luckily, it’s simple to overcome this by taking the documentation to an expert SBA loan advisor — they’ve filled it out so many times that it becomes second nature. You won’t find a free guide online as helpful or accurate as an experienced advisor at filling out administration!
Purposely Omitting Information
It’s hard to be honest when you have so much at stake. Looking at your finances, you may be tempted to think about keeping a little back – hiding it away for later. Purposely omitting information on the SBA Form 770 or Personal Finance Statement (PFS) is a common way that people hide assets.
As noted above, this can result in a great deal of trouble and rejection from loan forgiveness. Especially when it comes to forms, however, intentionally omitting information on a form, leaves the SBA with documented evidence of your fraud.
Poor Consultation from Shoddy and Ill-Experienced SBA Advisors
While many consultants call themselves SBA debt forgiveness advisors, the truth is that they often don’t have the specific expertise to handle the unique process involved with SBA loans. Most debt settlement procedures are indeed very similar, however, the SBA process has some striking differences.
These variations range from the paperwork and wording needed, to the network of institutions and standards involved, to content of the application. Only an experienced, high-quality SBA advisor, who works solely on SBA loans will be able to advise in an expert capacity.
As SBA loan forgiveness is so tricky, top SBA loan advisors need to have a comprehensive portfolio of previous clients, with a rich professional history. Look for a high success rate and valuable testimonials.
It’s important to understand that very cheap SBA loan advisors are not worth the money. When you’re trying to settle large debts such as this, it’s worth investing in high quality, knowledgeable SBA experts, which may mean paying a little more upfront. This, however, will be worth it in the end.
So, What’s the Takeaway on SBA Loan Forgiveness Mistakes?
SBA loan forgiveness is a delicate procedure and one that should be handled with fireproof gloves. Yes, you can have debts forgiven but the likelihood of this happening is slim already and increased if you’re unsure what you’re doing.
While people tend to have the best intentions, self-learning the process to represent your own case may not be the wisest financial decision in the long run. It’s true, it may save you a quick buck on an SBA loan advisor but you miss out on the wealth of experience and knowledge that a highly reputable SBA loan advisor offers. This leaves you with the risk of falling into one of these traps, or one of the many others not listed here!
If you’re looking to go down the road of SBA loan forgiveness, seriously consider hiring an SBA professional advisor — it may save you a great deal in the end and you won’t kick yourself for making one of this rookie errors!