Back when I started my consulting business, I was simultaneously working as a workout officer for a company called CIT that did a lot of SBA loans. Before they filed for bankruptcy, they were the country’s largest SBA 7a loan originator for years and years. My job was to deal with businesses that were struggling. In some cases we had to go the legal route. In many cases, were able to modify the debt in order to give the business owner some breathing room. At any one time, I would have 4 or 5 modifications on my desk. Once the you-know-what hit the fan in 2008, things changed. Notably, the all knowing government decided we needed to keep better track of how we we handling troubled loans. As a result, there was all sorts of red tape associated with a loan modification. So what did I do in response? I started avoiding loan modifications. That way I didn’t have to deal with the crap they put us through once a loan was deemed to be a “Troubled Debt Restructure”.
As I’ve seen over the years, I was not the only one who thought like this. Often times, its up the workout officer to decide whether a borrower is a good candidate for a loan modification. Given that every loan on my desk had some sort of trouble, it was not hard to find a reason to avoid a loan modification. And that’s why today, if you try to modify your SBA loan, you are likely to have so many roadblocks thrown up you’ll likely give up. They essentially make you re-apply for the loan all over again.
It’s sad that it’s come to this. There are many businesses out there that are viable, and just need a little help to get over the hump. Unfortunately, many peoples lives are ruined because they end up shutting down their business as a direct result of bank and regulator common sense. Am I saying that every business deserves a loan modification? No, some really should go under. But there are countless others that could be saved from failure if the banks and regulators would simply realize that giving small businesses a much needed break, it would result in the best possible outcome for everyone involved.