Defaulting on your SBA debt (or any debt, for that matter) is a stressful experience for most people. Fear of the unknown can really wear you down. Will they take my house? Will they empty my bank account? Will they garnish my wages? Will the shut my business down? Here is a question you may not have considered: Will they put me in jail?
Before you find a ledge to jump from, let me reassure you – – chances are you will NOT go to jail. Simply defaulting on a loan is not a good enough reason to lock you up. Imagine how crowded the jails would be if that were the case. However, I did recently speak with a gentlemen who spent time in prison as a result of an action he took in connection with his SBA loan. So what did he do? He lied. He provided the bank with information that was false, and they found out, and sent him to jail.
When I heard his story, I immediately thought of all the people who call me and want to know if selling their business to a friend/family member/business associate/themselves is the right way to settle their SBA debt. For those who haven’t read any of my other articles on the topic – the answer is no. Pretending to sell your business when you intend to buy it back at a later date as part of scheme to settle your personal guarantee is fraudulent. This means if you attempt to intentionally defraud the SBA and your bank, there is a real possibility of going to jail like the guy I mentioned earlier.
So what’s the moral of the story? Be honest. If a consultant has told you about a “strategy” that is too good to be true, it probably is. If you play is straight and do it the right way, the worst case scenario is that your OIC gets rejected. If you choose to intentionally deceive your lender and the SBA, the worst case scenario is jail. If that doesn’t convince you to do the right thing, I surely don’t know what will.
While it can be awfully tempting to use misdirection when it comes to your OIC, keep in mind that the person you are dealing with has done lots of OICs, and they can smell it when something is askew. The more something seems “off” the more likely it is that they will begin to dig in order to verify your story. All you need is one little stumble, and the settlement of your defaulted SBA loan may be the least of your problems. More to the point, some banks are now requiring “Arms Length” affidavits, which you and the buyer must attest to the fact that you are engaging in a legitimate transaction.