Hi folks! Welcome to my website. My name is Jason Milleisen. I’ve been helping SBA borrowers since 2008 (SBA is all that I do!). I know articles can be helpful, but nothing can replace a conversation. If you’d like to schedule a consultation, you can do so here.
Note: this article is only a drop in the bucket when it comes to SBA Offer in Compromise advice. If you want to read 200+ articles about SBA loan default, check out my blog. Most articles are longer and more in depth than this one.
Making the decision to close your business is not easy, but often times, it is absolutely the correct thing to do. Once you make the decision to close your business, the next inevitable question is: Now what?
If you are closing your business, you should establish a plan.
That plan usually means working with your bank. Presumably, the SBA loan you have is secured with the assets of your business. That can include tables, chairs, ovens, sinks, etc.
Before they will entertain talk of settling your debt, your bank will first want to liquidate all the collateral (the one exception could be your primary residence).
You need to contact your bank, explain to them that you have closed, and you are willing to cooperate however you can. This will usually entail the bank valuing the assets, and if they have value, they will sell them and apply the funds to your loan balance.
Once the business is closed, and all the business assets have been liquidated, you may then be eligible to submit an Offer In Compromise (OIC) to the SBA.
Notice that I said you may be eligible. Whether you actually are eligible depends on whether the bank and/or SBA believes that you can’t reasonably afford to repay your SBA debt over a reasonable period of time.
The next step is to submit the OIC through your lender (different story if your lender has closed their file). Your lender will review the OIC, then forward it on to the SBA (Note: the SBA will want to know if you’ve been cooperative, so play nice with your bank).
It’s important to keep in mind that if your home is being held as collateral, your OIC offer will need to at least cover the amount of equity in your home. If you don’t offer at least that, the SBA is likely to reject your offer.
It’s also worth noting that in many cases, declaring personal bankruptcy won’t save your home if it’s been pledged as collateral.
If your offer is strong enough (is there a formula?) and the SBA approves it, once you pay what you agreed to pay to settle the debt, the SBA will release your personal guaranty and any remaining liens on your home.
Keep in mind that if you are paying over time, these releases will only come once you’ve paid the entire amount of the OIC. This is why I push my clients to settle for a lump sum when possible.
If your settlement requires monthly payments, and you miss one, they whole settlement can be declared to be null and void. What could be worse than making payments for 3 years, only have have the entire balance of your SBA loan reinstated.
So that’s the short version. If you want the long version of the SBA default process, I’ve essentially written a novel about it here.