1) Separate Settlements Need to Be Arranged With The Bank and The SBA
Everyone one in a while, someone comes to me and says that their banker said that if the borrower wants to fully settle their SBA debt, the borrower needs to negotiate one settlement with the bank, and a another settlement with the SBA. This is not true. For the vast majority of loans, a settlement must first be approved by the bank, then forwarded along to the SBA for a final decision. If approved, the proceeds from the settlement are shared by the bank and the SBA. This is a “back office” transaction that borrowers are not involved in.
2) The SBA Is A Single, Uniform Organization
When you hear the term “SBA loan”, one might think that regardless of how it plays out, there would be consistency within the organization when it comes to settlement parameters. Not true. The kind of loan you had will dictate how your settlement will be negotiated. 7a loans, Express loans, and 504 loans all have specific areas with their own unique interpretation of the SBA Standard Operating Procedures. Therefore settling them requires specific knowledge of each loan types settlement parameters.
3) You Need An Attorney To Negotiate A Settlement
For those who chose to read all my blog articles, I have beaten this horse to death. Settling an SBA loan is a financial matter that requires someone with keen knowledge of the SBA settlement process. In most cases, SBA loans get settled with no litigation. Most attorneys do not have SBA knowledge, which would mean that they are simply learning as they go.
4) You Need To File For Bankruptcy
The SBA Offer In Compromise is intended to be an ALTERNATIVE to bankruptcy. Astonishingly enough, there are some bankers who are brazen enough to tell borrowers that if they can’t afford to repay the loan, they will need to file for bankruptcy. Not only is this advice out of line (the banker’s job is to collect on the debt, not offer financial advice), it’s irresponsible. While there are certainly times when bankruptcy is a viable option, it’s not the best alternative in every situation.
5) The Bank/SBA Won’t Come After Me
The biggest mistake you can make is to assume that you are not worth chasing. It’s also misguided to wait for the bank to come to you to talk about a settlement offer. I can’t tell you how many calls I’ve gotten from borrowers who decided to wait until the bank contacted them rather than being proactive about it. The result: the bank (unbeknownst to the borrower) refers the file over to the SBA, and it makes its way to a collection company who is essentially impossible to settle with. What you could have perhaps settled for 10 or 20 cents on the dollar with the bank will now cost you 5 times that!