I have been helping borrowers out of sticky situations for a number of years. Perhaps over time I’ve become a bit desensitized to the financial devastation that most borrowers experience. I used to listen patiently as the client explained in detail how or why it all went wrong. These days, I ask the client to “cut to the chase”. Why? Because in most cases, whether or not you can settle has little to do with the circumstances that led you to default. Here are some examples of what I hear a lot of:
1) I bought a business and the seller violated the non-compete. For some reason, I hear this a lot from CPAs. The buyer purchases a practice, and months or years later, the seller pops up the next town over offering their services to their former clients. Obviously, this is not good for the buyer. The bad news, however, is that there is not much the bank can do to help. To make matters worse, the bank and SBA will not be willing to forgive your loan because you were defrauded by the seller of the business.
2) My partner screwed me. Many people call and want to get half the loan forgiven because their 50% partner wronged them in some way. Unfortunately, in most cases guarantors are unlimited, meaning each partner is 100% personally liable for the debt. So when you tell the bank of your bad luck with your partner, the response will be “sorry to hear that, but you need to find a way to honor your obligations”.
3) The economy ruined my business so you should let me go. Some people think that a settlement means that you are having a rough time so the bank simply let’s you walk away because they feel bad for you. Not the case. The concept of debt forgiveness means that in exchange for payment, the lender and SBA will forgive a portion of the debt. How much they will accept depends on many factors, but the only absolute is that you will not be released unless you can offer a material payment.
The purpose of this article is to drive home the idea that when it comes to SBA Offer In Compromise, your current financial situation will be the main focus, so your energy is best spent on that rather than trying to spin a sad tale of woe.