Note: Below is a transcript from the video below:
Hey guys, my name is Jason. I’m the founder of Distressed Loan Advisors. If you want to book time with me, there is a link below or you can just go to HERE.
All right, today I want to talk about the offer in compromise, specifically some arguments that I often hear people making or wanting to make in their SBA offer in compromise in order to convince their lender that they should settle.
And so I guess the first thing that I’ll say is this applies mainly to SBA 7A loans. Right now, as of November 1st, 2024, to my knowledge, there is no offer in compromise for EIDL loans.
I’ll say it again, as of now, October, sorry, November 1st, 2024, there is no EIDL offer in compromise. So if you’re interested in settling and you want to contact me about settling your EIDL loan, this is your answer. You don’t need to confirm it with me. (And quite honestly, I get so many inquiries, I cannot respond to them all – so I have to ignore questions like “I saw on your YouTube that there is no OIC for EIDL, is that true?” With that said, let’s move on. So for SBA 7A loans, there absolutely is an offer in compromise.
Not everybody qualifies, not all of them get approved, but if you can demonstrate to their satisfaction that you can afford to pay it over any reasonable period of time and that your offer is truly reflective of your situation and that it results in the best recovery for them, they will consider it.
With that said, there’s certain narratives that work, certain narratives that don’t work. And so I’m going to focus on five different arguments that I’ve heard borrowers make and want to make that I think are losing arguments.
First: “I’ve had this loan for five years and I’ve paid $200,000 in interest and I paid back $100,000 in principal. And so you should consider that when considering my settlement offer.”
No, that’s not how it works.
Workout people, their job is to collect as much money as possible. How much you’ve paid to them in the past really doesn’t matter because if they eat 50% of the principal or something like that, they’re still losing money on this deal. And besides that, it’s not a consideration.
How much money they made off of you previously is not a consideration for how much they’re willing to settle for. How much they’re willing to settle for, it depends on your personal financial circumstances. It has nothing to do with how much you’ve paid them.
Two, a personal guarantee is a personal guarantee regardless of your involvement or ownership in the business. So I’ve had people say, oh, “I signed this personal guarantee for my friend, my kids, my parents, my cousin, whoever. But I didn’t really have anything to do with the business. So why are they coming after me?”
And what I can tell you is that the nature of the personal guarantee does not require you to have any ownership interest or active involvement in the business.
By signing the personal guarantee, you are guaranteeing repayment of the loan in the event that the borrower cannot afford to pay. And typically, the bank is under no obligation to go after other guarantors before you, totally within their discretion.
So trying to argue, “yes, I signed the guarantee, but I had nothing to do with the business”, it’s going to fall on deaf ears.
Next: COVID.
People often will call me and say, well, “is the SBA, are they doing anything special? Are they making exceptions? Because my business really got wiped out during COVID and we never recovered.” The answer is no.
Unfortunately, you know, the vast majority of businesses who are struggling were impacted by COVID in some way. So they’re not making any special considerations. So it’s not an argument that I would lean on or rely on.
Because I don’t think it’s going to get you anywhere. I think there’s certainly better arguments that could be made.
Next, another big mistake that I see people make is ignoring the details of their personal financial situation and wanting to just make an offer for the sake of making an offer.
And I say this to people, I probably say this 10 times a week. They don’t negotiate for the sake of negotiating. They negotiate when it’s in their best interest to do so.
So just to give you an easy example, if I owe $100,000 and I pledge my homeless collateral and I’ve got $500,000 in equity in my home, and I make enough money to borrow against that equity, I can’t simply go to them and say, well, I’ll give you $80,000 to settle this right now.
This is not like selling your couch on Craigslist where everything’s negotiable. They only negotiate settlements when it’s clear to them that there is no way for them to get their money back and it’s in their best interest to negotiate with you.
So if you’ve got the income and the assets to pay this loan in full, they will not arbitrarily negotiate that number down for the sake of negotiating. You have to demonstrate to them that the amount that you’re offering truly is the best that you can do and that it’s the best result for them.
Finally, when it comes to your home, I’ve had people try to argue, “well, they’re not really going to like force me out of my home. I’ve got a five-year-old and they go to school here and I grew up here” and all this stuff. My answer to that is the SBA absolutely does not want to push people out of their homes. That is not their goal.
They don’t want to do it. They advise their lending partners not to foreclose as a first option. They say work with people, even if it’s payments over time.
But it’s important to note that while their main objective is certainly not to kick you out your home, if there’s enough equity, and that’s the only way the lender sees to get their money back, they will go after your home.
To argue to them after you’ve pledged your home, well, look at what you would do to me. You would devastate me if you foreclosed on my home.
Honestly, that’s the conversation you and your spouse have or that’s the sort of thing you think about before you pledge your home as collateral. Because once they’ve got a lien on the home, what do you think is going to happen when you don’t pay them? That’s why they took the collateral to begin with.
If you’re in a position where your business is closed and you’re not paying them and their only option is to foreclose on a piece of property that’s got a ton of equity in it, unfortunately, a lot of cases they’re going to do that.
I would not try to appeal to their empathy. In other words, they hear all sorts of sob stories and I don’t want to minimize it because I know how traumatic this can be. But just keep in mind that if I’m a workout officer that’s got 50 files on my desk, 49 of them are telling me how difficult things have been for them.
So to go to them and expect them to show any empathy or make decisions based on empathy is likely not going to be the case. So that’s it. Those are five arguments that I think fall flat when it comes to the SBA offering compromise.
Again, this does not apply to EIDL loans as of now. This is just 7a. So that’s it.
Thanks for checking in. We’ll see you on the next one. And as always, if you would like and subscribe, that tells the Google algorithm that I’ve got information and help other people find me.
