Note: The article below is a transcript of this video:
Good morning guys, my name is Jason. I’m the founder of Distressed Loan Advisors. If you want to schedule some time with me, there’s a link below, or you can go to HERE to access my calendar.
All right, today I want to talk about the one thing that I’ve seen borrowers do that instantly kills their chance to settle their SBA 7A or 504 loan. Just as a reminder, there is no settlement opportunity for EIDL at the moment.
All right, so I had a call today with some borrowers. They told me they closed their business and they gave away all the assets to get out from under the franchise. And so my first question was, okay, did you coordinate with your lender on this? Did you tell them that the business closed and did you tell them that you gave away the assets and did they approve that? And the answer to all of that was no.
So that’s the one thing that is going to kill any opportunity to settle. If you give away the business assets without getting the SBA’s permission to do so, it’s going to make settling this debt very, very difficult. In particular, if they believe that there was value in those assets.
Now, the reason that this is such a big problem is, well, for a couple of reasons. One, for when you take an SBA loan, you grant a security interest in your business assets, which means they have a lien on it.
They file something called a broad UCC, which says all of your stuff that other people don’t have a claim to ahead of us, we have a lien on, which means you cannot sell it or transfer it without our okay.
So if you close your business, let’s say you’ve got a pizzeria, Jason’s Pizzeria, and we shut down the shop. I can’t just like, and let’s say the landlord wants me out. And so I say, oh, I got to get rid of this stuff. So I just started giving the stuff away.
And I say, well, you know, maybe it was worth a couple thousand dollars, but I had to be out of that space. And so I just gave it away. If your lender becomes aware of that, that could be something that they consider to be a fraudulent conveyance.
So in other words, you transferred our business assets, our collateral to someone else. And so presumably, if that had value, they could sell the stuff. It’s basically the same as if you sold it without their permission, you just can’t do it.
On top of that, if the bank is not even aware that your business is closed and you haven’t notified them, and six or 12 months has gone by, that’s going to be a problem too, if you go to them trying to negotiate a settlement.
So here’s my advice. If you’re going to close your business, you need to let your lender know, and before you do anything with the assets, you need to get your lender’s permission.
So if it doesn’t have any value, that’s fine. They need the opportunity to come out and do a site visit. So they want, and in some cases they won’t, they’ll say, oh, if you just got an office, send us a list. We’ll do, it’s called a desktop appraisal. But either way, you need to give them the opportunity to be involved in this process.
You can’t make the decision on your own as to whether or not the stuff should be sold or given away or thrown away. You really need to share that with them. So if your business is going to close, one, you call them and you let them know I’m going to be closing on such and such date.
Two, you want to coordinate with them to come and take an inventory of what’s there. If they don’t want to take an inventory, that’s fine. You can send them just the list if they want to do a desktop, that’s totally fine too, but you need to do it in coordination with your lender.
So that’s it. I’m not going to keep talking. I’ve made my point. Do not sell or transfer assets without your lender’s approval. That’s true in pretty much every loan type, but particularly true if you’re going to try to settle.
Selling the assets without permission, especially if you hold onto the money or God forbid you spend the money on some other creditor, that could almost instantly kill your chance to settle. So don’t do it. So that’s it.
Thanks for checking in. If you get a lot of value from this information, please like and subscribe. That would really help me because the algorithm tells Google that I know what I’m talking about and it’ll help people find me.
