Note: This article is a lightly edited transcript of the video below.
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Hey guys, my name is Jason. I’m the founder of Distressed Loan Advisors, and you may be wondering, why does he look like he’s laying on a couch? And the reason is, I am laying on a couch because I had some surgery on my foot. I’m gonna be laid up for the better part of, I guess, the rest of the year. I have something called an accessory navicular bone, but…you don’t care. You’re here for SBA loan information!
So, today we’re gonna talk about why SBA lenders sometimes say and do things that don’t make any sense.
And I’m talking about, in particular, SBA 7A loans. So, if you’re here to talk about EIDL loans or get information about that, you can skip this one and head over to me EIDL resources page. If you got an SBA 7A, 504, Express, loan like that, this may be for you.
Today, I had a client call. She fell a couple months behind, and her lender could not have worked harder to give her a hard time. I told her, this is an example of lenders not being able to get out of their own way, and we’re trying to figure out exactly why they were acting the way they acted.
And just to set the scene, basically, she had a loan for a little under $200,000. She was making payments, and she hit a rough spot. She couldn’t afford payments for a couple months, and so she went to the bank and said, hey, “I’m a month behind, can you give me a deferment just to get through this? I’ll be able to catch up in a couple of months.”
And so, what most normal lenders will say is, “sure, no problem, we’ll give you a three-month deferment. The payment you missed will be applied to that, so make a minimal payment, interest only, whatever it is for the next two months, and then you resume regular payments.” That’s the common sense way to do it.
That’s the way I used to do it at the lender that I worked at. But this lender chose to do it differently.
Instead, they said to her,
well, we can’t really help you with a deferment unless you bring your loan current”, which doesn’t make any sense, right? Because if you can’t afford payments, that’s why you’re going to them for help to begin with.
But that’s what this lender said. Sorry, can’t help you unless you’re current. So, she fell four months behind.
Finally, had some money come in, went to pay them, and they said, “well, we’re not gonna accept your payment now. We want payment in full.” And it’s mind-blowing to me that a lender would choose to essentially flush a loan down the toilet.
So, instead of having them repay, now they have a crisis of their own doing. So, instead of allowing her to catch up, make payments, they said, “sorry, we’re gonna close our file, refer it over to the SBA.” And I said to my client today, there’s probably one of two explanations that’s going on here.
One, the bank just doesn’t want to be involved in your loan. So, if your loan has a history of always being late, if you have a history of saying things to your lender that turn out not to be true, like I’ll make a payment this week, and then you don’t, then they have a reason not to trust you. And so, that I could be on board with.
If you’ve fallen behind continuously over the life of this loan, then they’re probably out of patience. It’s called “lender fatigue”, and they want to move on. But my client said, no, this is the first time I’ve ever asked them for help.
So, I said, okay, well, the second alternative here is that your lender has decided institutionally they don’t want to be involved in the servicing of these SBA loans, or they don’t want to be involved in SBA loans at all.
So, in other words, if as a bank, the boss says to the workout officer, look, we’re not doing deferments, modifications, or settlements. We don’t want anything to do with these.
We don’t want you spending your time on this. The net result is just basically giving people a hard time until they get it to default. They wrap up their file, they ask for the SBA to reimburse them, and then they move on with life.
So, it’s possible that that’s what happened here too. So, those are all the possibilities, but here’s the larger point. If you have an SBA 7A loan or a 504 loan, the lender is the one who has to service the loan.
And so, despite the SOP (Standard Operating Procedures) saying what they should do or what they shouldn’t do, unfortunately there is some subjectivity when it comes to servicing SBA loans, and you sometimes will get a lender who does not want to be cooperative.
And the unfortunate part is if you call the SBA and say, “I applied for a deferment and my lender said no”, the SBA is going to say, “sorry, you have to deal with your lender.”
The only time the SBA is going to get involved is if the lender does something very outrageous or egregious. So if they say like, “well, you have to sell your house in order to settle with us” or something like that. But other than that, subjective servicing decisions like who qualifies for a loan modification unfortunately is up to your lender, so you are going to be at their mercy.
So, all this is to say that if you’ve got a 7A loan, you have to play nice with your lender, and in many cases you have to accept decisions that they’re making even though they don’t make any sense, just from the standpoint of that they’ve got latitude in terms of servicing and you have to live with it.
And if that’s the case, and this is the case with my client that I spoke with today, I told her, you’re probably better off with the lender referring the loan over to the SBA because at least we can try to work out a payment plan with the SBA if appropriate, or try to work out some sort of settlement directly with the SBA.
Because if the lender has essentially signaled that they’re not interested in working with you, there’s nothing we can do, so the next best thing is try to catch it at the SBA. And keep in mind that if you get that 60-day letter from the SBA, it will be your last opportunity to try to work something out with the SBA before it gets referred to the Treasury.
And for those of you who’ve not watched my videos before, the Treasury is where SBA loans go to die. Very unlikely to settle. They’re gonna hit you with huge penalties.
They’ll put you in the Treasury offset. So if you have any inclination to work something out and your lender isn’t willing to play ball, your next best option is to work something out directly with the SBA. The hard part about that is you do need to get that 60-day letter to get the ball rolling.
If it’s been a while since your lender told you that they referred the loan over to the SBA and you haven’t heard anything, then you kind of have to be the squeaky wheel, start making calls, find out where the loan is being serviced, because you don’t want it to end up at the Treasury. All right, that was a mouthful. That was a lot to say.
But the summary here is if you’ve got an SBA 7A loan, there are cases where the lender just doesn’t wanna help you and there’s nothing you can do about it, unfortunately, and the next best thing is to try to work directly with the SBA. But that can only happen after the lender has closed their file and referred to the SBA. And hopefully, at that point, you will have received a 60-day letter.
So that’s it. Thanks for checking in. If you wanna schedule time with me, you do so here.