Have you found yourself defaulting on your SBA loan repayments and starting to get the jitters about possible repercussions? Perhaps you’ve heard about SBA loan forgiveness and feel as though all your prayers have been answered.
SBA debt forgiveness is indeed a possibility. As an agency, the SBA understands that sometimes no matter how hard you work, no matter how many hours you put in, no matter how genius your startup idea is – sometimes business just doesn’t work.
You need to quickly comprehend however, that SBA loan forgiveness is not a right and shouldn’t be expected. While obtainable under the right circumstances, the road to forgiving SBA loans is a rocky one – and one you should tread with caution and probably with professional assistance from an SBA loan expert.
To get the ball rolling on what shouldn’t and shouldn’t be expected in SBA debt forgiveness, here is a handful of vital wisdom to help you scale the sheer cliff-face of SBA loan settlement – and remember having a professional advisor along the way is a great harness to stop you dropping off!
Be Cooperative – They Don’t Have to Forgive Your SBA Loan
One of the biggest mistakes when going down the loan forgiveness route is expecting that it is your right to have your SBA loan forgiven. This isn’t the case.
The SBA will only carry out the loan forgiveness procedure in certain cases, and only specific parties are eligible.
From the get-go, it’s important that you work with the banks and the SBA instead of trying to fight against them. If it has reached the point where you really can’t pay back your SBA loan, you’ll need to consider this process seriously – preparing yourself to do what’s asked by all related authorities.
It doesn’t go down well when you start raising your voice or demanding action. Instead, speak calmly and honestly – following the advice given to you promptly.
One of the major hurdles, for example, is that most often, you will be required to close your business. It’s advisable to do this without fuss so the process can move forward smoothly.
If you have collateral or valuable assets which can be utilized to pay off part of the loan, you may be required to sell these. This is undoubtedly an emotional undertaking, but unfortunately, showing willing is the best way to have the borrowers on your side.
Equally, you may be offered the chance of an ‘Offer in Compromise’. This is a remedial, out-of-court option to settle the loan for a cash sum upfront. If you’re really struggling to produce a lump sum, there is the SBA OIC Package. This is a monthly payment plan option enabling installments to be paid over a period of up to 60 months. This can really help you to get your debt on track if you don’t have funds right away and should be considered as a viable and manageable option. Whichever way you approach the compromise process, you will need to respond to this right away and offer what you can, or the process won’t continue and you may be reported to higher authorities for being uncooperative.
You need to know that the SBA can reject an Offer in Compromise. It doesn’t have to accept the amount you propose. This is why it’s advisable to be cooperative by offering an amount that seems fairly in accordance with the assets they could recover. A specialist in SBA debt forgiveness advice would be able to give you an indicator of this.
It should go without saying that if the Offer in Compromise is accepted, both by the bank and the SBA, you need to pay it on time without any excuses or exceptions.
Understand that being stubborn or not doing what’s necessary will not work in your favor. If you are seen to be unhelpful, you can be referred by the lender to the U.S. Department of Treasury, leading to enforced collection mechanisms.
SBA Loan Forgiveness Hinges on Your Financial Situation – Not Everyone Qualifies
While it may be depressing to think you may lose your entire investment and collateral, you need to understand that SBA loan forgiveness is reserved for those people who really, honestly can’t pay.
Firstly, if your collateral is enough to pay off the loan, SBA forgiveness won’t even be considered. Say your new $10K truck is registered as collateral against your $7K loan – they’ll take the truck as repayment. No settlement will be offered.
Equally, if you have money in personal savings and investments that are unrelated to your business, these will be used to repay the debt in full before a discount would ever be considered.
It’s key that you understand what is counted when it comes to your personal assets and investments as this could affect relationships where you have joint finances. Of course, the SBA can force you to hand over cash, accounts/notes receivable, and the cash surrender value of life insurance. Beyond that, the SBA can also make a valuation of tangible property, such as furniture, fixing, electronic equipment, personal items, jewelry, antiques, paintings, vehicles, and valuable collections.
Property is another claim the SBA may stake before considering debt forgiveness. This affects both property you own, and the property you jointly own with others.
Be aware that the SBA is serious about getting the loan repaid before handing out any kinds of settlement discount. They will consider looking into inheritances, stocks and shares, patents, copyrights, liquor licenses, and virtually anything they deem to have value.
This is why being cautious and approaching the SBA debt forgiving process correctly is essential to succeed in a settlement. Without experience, you may find yourself surprised by where the SBA can recall funds from!
Also note, that in order to qualify for settlements of less than $5k, you need to fit under the SBA’s definition of financial hardship, which is:
Organizational Standards Vary Between Different SBA Offices and Bank Branches
While you may qualify by these criteria, that doesn’t necessarily mean that you’ll be eligible at every single branch or office. In each region, the standards and accepted practices vary. While this may seem subjective and unfair, it’s a reality and one that an inexperienced debt negotiator will find difficult to wrestle with.
For example, most lenders are trained cynics, with an automatic assumption that borrowers are exaggerating their financial hardship. With so many default cases on their plate, they’re looking to make sure you’re the real deal.
However, what is considered ‘financial hardship’ may vary between financial institutions and the various organizations associated with your SBA loan. In fact, the way the SBA agency definition is interpreted between SBA offices may differ. This can affect your likelihood of being offered SBA debt forgiveness if you’re unsure how to present your case correctly.
Equally, while the internet is a powerful tool to equip you with an understanding of the SBA forgiveness process, the actual procedures may differ between offices and branches. As the key to confidence is being prepared, these variations may throw you off-guard, unsettling your chances of success. Seeking professional help can be valuable in traversing these differences.
Bypassing The Lender Rarely Works
As the anxiety grips us, often we become scared to talk directly with our lenders. Instead, we cling on to the safety of agencies that may be able to help us.
In this case, it’s important not to cut the lender out of the process. Part of the SBA forgiveness procedure is the negotiation between the SBA and your lenders – lenders don’t like to think you tried to cut them out without asking for their advice first.
Additionally, the SBA is the final decision maker when it comes to debt forgiveness. However, the agency will only get involved once your lender has tried and failed to collect. If you haven’t been cooperative in the process, the SBA isn’t going to look too fondly on you when it comes to offering a discount.
Equally, it cuts the other way. Don’t try to make a deal with your lender without consulting the SBA. This is because the SBA acts are the guarantor to your loan. If your lender goes ahead and forgives your loan without approval from the SBA, the run the chance of losing their guarantee.
Simply put, they end up making a deal with you for a smaller amount than the 50-75% they’re guaranteed from the SBA. This would make no financial sense to them and so won’t work as a tactic.
Experienced SBA Advisors Can Navigate This Network Fluidly
Not only have experienced SBA advisors seen a plethora of different cases and scenarios, but they also build an independent network and community within the industry over time. When it comes to traversing the confusing and fluctuating processes in and between agencies and financial institutions, experienced SBA advisors have insider knowledge on the procedure.
You’ll find that when you hire a professional SBA advisor, they are clued into the unique SBA loan forgiveness process. While many people think it will be similar to settling any old debt, that isn’t the case with SBA loans which have a very specific set of procedures – experienced advisors not only know this. They’ve experienced it with a multitude of clients across an umbrella of financial institutions and SBA branches.
The value of experience when it comes to an SBA professional can be crucial to a potential settlement. While it’s honorable to research your case and believe you can fight your corner efficiently, unfortunately, there’s limited online information about the fighting style to use.
As agencies differ and financial institutions vary, SBA advisors understand which points are worth fighting and which are worth stepping off the soapbox. This skill underpins success or failure of an SBA loan forgiveness case – can you trust you’ve got it all by yourself?
Instead, hiring an experienced and knowledge SBA advisor gives you comfort in knowing the process is second nature to them, and they know exactly the route to take to better your chances of SBA debt forgiveness.
It’s Not an Easy Way Out – It Has Costs
Understand that SBA debt forgiveness won’t leave you skipping down the road, completely off the hook. It impacts you personally into the future when it comes to accessing financial instruments.
Firstly, your business is most often shut down. While there are exceptions to this on very rare occasions, it’s worth coming to terms with this fact now. This is especially important if you have a business partner. This includes the liquidation of business property and assets, which are subsequently plowed straight into your debt repayment.
You may also be required to use your personal equity or perhaps you may have a property and personal effects as collateral. These will be lost, which can be an emotionally draining experience.
Your credit score will also take a beating, which can hammer down the likelihood of you getting further business loans, mortgages, and so on. Understand that if you have a guarantor signed on to your SBA loan, it’s going to affect their credit ratings too – something that can be impactful to personal relationships.
SBA loan forgiveness is a hard nut to crack. Yes, it is possible to sort the whole mess out by yourself, but there’s a high chance you’ll have a headache doing it and your chances of succeeding are slimmer than with expert help. Without experience in the procedure, your odds of missing your shot through rookie errors is very high. The SBA forgiveness process is stringent and peppered with insider secret plays, making an SBA advisor a valuable team member to help to scale the mountain.
Before brushing off the idea of help from an expert, consider the potential fall out if you’re reported to the U.S. Treasury and are handed over to private collectors with aggressive methods for getting their money. You’ll find these debt collectors will rarely settle for anything less than 50%, leaving you having to pay more than you would have done, or face continual and frightening harassment.
Having a knowledgeable, professional SBA advisor behind you saves time, hassle, and gut-wrenching worry as they know the ropes – giving you the best shot at settling your SBA loan.