In September 2008, I joined a company called CIT small business as a loan underwriter. CIT did nothing but SBA loans In October 2008, the financial world imploded. CIT had its funding frozen, and they stopped underwriting loans. What they did have was more defaulted loans than their previously sleepy little workout area could handle. So instead of being laid off, they moved me over to their SBA loan workout area. I spent a year there, and since I hated being a corporate stooge with a passion, started my own SBA workout business focusing on assisting borrowers navigate through the SBA Offer In Compromise process. Along the way, I’ve learned some lessons:
1) The way to make money is to start a business from scratch, then sell it. Buying a business from a founder can be difficult. Unless you have worked in the business and know everything about it, stepping into the shoes of a person who spent their life building the business from scratch often leads to failure.
2) I would never pledge my home as collateral unless I was truly prepared to lose it. Many people pledge their homes because they are told “that’s just what you do”. The failure rate of small businesses is much higher than of residential mortgages, so don’t get talked into thinking that it’s the same thing.
3) Get any “promises” in writing. The number of people who have told me that their lender verbally told them they would release their home in “a few years” is scary. If it’s not in the loan documents, you should assume it’s not going to happen.
4) Having a family member give their personal guarantee or pledge their home can be disastrous. I’ve have people call me, not fully understanding the magnitude of what they are offering by co-signing a loan for a friend or family member.
5) Too many people are looking to “buy a job”, and don’t fully want or understand the difficulties that come with entrepreneurship.