The most common question I get is “How much can I settle for?” When I explain that it depends on a number of highly personal factors, the next question is “well, what’s the average settlement?” I then go on to explain that giving them an “average” won’t really be a good predictor of their settlement outcome. Here’s why:
- If you pledged your home, the amount of equity in it will go a long way towards determining where settlement discussions will land. The guy who has $100,000 in his home is going to have a radically different settlement (assuming all else equal) than the guy who has $0 in equity.
- How much you owe is going to impact the amount you settle for in some SBA offices. Some offices (not all) want an arbitrary settlement percentage, such as 50%. Obviously if you owe $1 Million vs $100,000, that’s going to be a giant difference.
- You current income situation, your future earning potential and your personal assets will impact the amount you settle for. These factors VARY GREATLY from person to person. I’ve seen people with next to nothing, and I’ve seen people with healthy savings.
As you can see above, a settlement is a big ‘ole pot of financial stew. And the ingredients that go into YOUR stew are unique, and they are likely to be different than everyone else’s stew. With all that said, clients and potential clients will still try to “ballpark” their settlement amount. Last month, at the prodding of a client, I explained that if I had to give an average settlement percentage, I would put it in the range of 20% to 40%. He immediately took the mid-point of 30% and applied it to his current loan balance. And my response was “please don’t do that! It won’t be accurate!”
I understand that when it comes to SBA settlements, people look to me as the expert to give them a surgically accurate estimate, but the reality is that settlements are not formulaic. There is some psychology involved that can only be guessed. For example, some workout people always assume that if a person is a doctor or a lawyer, they are going to have a high income for the foreseeable future. So in a settlement negotiation, the workout officer’s feelings on that particular topic can have a large impact on the settlement in a real way, but it’s not necessarily something than be plugged into a spreadsheet. My job, you see, in that scenario would be to identify the fact that some workout officers view these professions different than others.
So if you call me and ask me how much you can settle for and it hedge, its not because I don’t want to tell you. It’s just that when it comes to settlements, they are kinda like snowflakes. No two are alike!