Welcome to the SBA Loan Default Blog by Jason Milleisen, Founder of Distressed Loan Advisors

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Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness.

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SBA Loan Default Articles (Last Updated on 7/23/14):

A Welcome Letter From Jason

Questions To Ask A Potential Debt Settlement Advisor

Did You Hear What That Attorney Said About Me?

Settling With The US Treasury - In Most Cases, Don't Even Bother

Worst SBA Workout Advice I Ever Heard

Is an Offer In Compromise Required For A Lien Release?

Lots of Jargon, Little Content

The Role of Luck In SBA Offer In Compromise

They Won't Put Me In Jail, Will They?

The Three Most Common Misconceptions About SBA 504 Loan Workouts

Settling SBA 504 Loans

When They Say "Jump", You Say...

Can I Sell My Business To My Friend?

SBA Offer In Compromise: [Insert Tale of Woe Here]

SBA Default Workout: It's Often Not What I Know, But Who I Know

SBA Offer In Compromise: Use It Or Lose It!

SBA Loan Settlements and Reasonable Expectations

SBA Settlement Success

SBA Default: "Why Do I Need You To Fill Out Some SBA Forms?"

A Million Reasons To Settle SBA 504 Loans Sooner Than Later

Another SBA Offer In Compromise "No-No"

SBA Offer In Compromise and the Personal Guaranty

SBA Offer In Compromise Is A Business Decision

SBA OIC (Offer In Compromise): Timing Is Everything

3 Years and $30K Later, No SBA Settlement

3 Myths About The SBA Offer In Compromise

SBA Loan Workout: Should Retirement Savings Be Listed On Your PFS?

How SBA Loan Workout Officers Think

SBA OIC (Offer In Compromise) and Community Banks

Common Questions About SBA Loan Guarantees

Top 5 SBA Default Myths

SBA Default and Fraudulent Asset Transfers

Why I Can Handle An SBA Workout Better Than Your Attorney

To Succeed With an SBA OIC, Don’t Do This

Do You Need A Lawyer To Negotiate Or Settle Your SBA Loan?

I Need An Attorney To Handle SBA Default, Right?

SBA Default and Disaster Loans

SBA Loan Default:  I Didn’t Pledge My Home, So How Can There Be A Lien?

SBA Loan Settlements: What About My Landlord and Seller Note?

SBA Loan Default Consequences: Lessons Learned

SBA Loan Default – More Common Questions

What I’ve Learned as an SBA Workout Consultant

SBA Default: 3 More Reasons Why You Should Settle Today

4 Facts You Need To Know About SBA Loan Workouts

SBA Loan Bankruptcy: Does Your Lender Care If You File?

SBA Loan Workout:  The One Obstacle You Didn’t Expect

SBA Loan Bankruptcy – The One Fact You Need To Know  

SBA Loan Workout –  Why You Need To Settle Today

SBA Workout - Will the SBA let me sell my business?

SBA Debt Forgiveness: Why Won’t Some Lenders Forgive an SBA Loan?

SBA Default Consequences:  Bad Stuff That Can Happen

Will SBA Loan Forgiveness Impact My Credit?

SBA Loan Default: Why Is My Banker So Mean To Me?

Why Won’t the SBA Help My Business?

Can You Discharge an SBA Loan in Bankruptcy?

SBA Settlement or Bankruptcy?

SBA 504 Foreclosure - Less Likely Than Ever

Is SBA Debt Forgiveness Taxable?

Does the SBA Forgive Loans?

SBA Loan Foreclosure – They won’t really take my home, will they?

Common Questions About SBA Loan Forgiveness, Part I

Common Questions About SBA Loan Forgiveness, Part II

SBA Personal Guarantee Release: Victory!

SBA Default – 3 Key Elements To A Loan Settlement

SBA Default:  Banks Are NOT Required To Accept a Settlement Offer

SBA Default and Debt Forgiveness: Ethics and Legality of on Asset Dump Buy Back

SBA Default: Common Questions From Clients 

SBA Loan Modification: Not The Way To Go?

SBA Default: Our Guaranty To You

SBA Default: Why Hire A Workout Consultant?

SBA Loan Default: Waiting To Settle Can (And Probably Will) Cost You

How can I stop my SBA Lender from Foreclosing on my home?

The Best SBA Settlement and Offer In Compromise Advice You’ll Ever Get

SBA Default Is Not A Reason To Lie or Cheat

SBA Loan Default:  What Are My Options?

The SBA Offer in Compromise - Debt Settlement 101

SBA Loan Default: What Does The SBA Look For In A Settlement Offer?

How To Qualify For An SBA Deferment or Modification

SBA Loan Default: Personal Judgments – What Can Happen?

SBA Default: Common Questions From Clients 

Top 4 Mistakes That Borrowers Make Following SBA Loan Default

Short Sales, Foreclosures and SBA Loan Default

Repercussions of an SBA Loan Default

SBA Loan Default:  Is SBA Workout Consulting A Scam?

SBA Default: What The SBA Guaranty Means To The Borrower

SBA Default: Deferment vs Modification

SBA Loan Default:  Banks Are NOT Required To Accept a Settlement Offer

How To Qualify For An SBA Loan Deferment

SBA Offer In Compromise:  How To Close A Business

SBA Default:  Is an OIC required for your SBA lender to release a lien on your home?

SBA Default – Why Settle?

 

 

A Welcome Letter From Jason

Dear Visitor,

Thank you for taking time out of your busy day to visit my website.  I hope you find the information within the site to be informative and helpful.  When I first starting writing articles about SBA default resolution, I was apprehensive about “giving away” too much free information.  Why buy the cow, they say, when you can get the milk for free?  Over time, I came to realize that while there is value in the information I provide, the consulting services I provide for my clients in real time can never be duplicated, no matter how many articles I write.  Once that realization set in, I have endeavored to cover every question I’ve been asked by actual and prospective clients over the years about settling commercial debt.

If you are considering hiring me to help you, there are some important things you should know about me:

 

-     My only area of focus is SBA loan settlements and modifications.  I do this to ensure that I remain aware of all the current policies and changes to SBA protocol.  SBA loan settlements require very specific knowledge, so simply having experience with commercial debt settlement is not enough.  Keep this in mind when interviewing potential advisors.

-            I Pride Myself on Being Responsive and Available.  During a time when you are in dire need of help, it’s my job to reduce your anxiety.  While settlement is the ultimate goal, I also know that having an accessible advisor can alleviate the stress of wondering when (or if) you will get a call back.  I’m constantly amazed by people who have questions about the legal or bankruptcy process that went unanswered because the borrower couldn’t get their attorney on the phone.  I simply don’t allow things like that to happen.

 

-          I Don’t Make Empty Promises or Guarantees.  These days, it seems that everyone with something to sell makes bold guarantees.  But really, what does it mean for me to say that I guaranty that I will settle your debt if there are no real consequences if I don’t deliver?  For that reason, I make it clear in my consulting agreement that there are no guarantees of success.  Is my track record good?  Yes, extremely good.  Will I do everything in my power to help you? Of course.  Can I 100% guaranty success?  Unfortunately not, and neither can anyone else.  In most cases, my fees and payment terms are more reasonable than my competitors to begin with, but in the rare case when they are not lower, I will match any reasonable fee structure. If you think I'm the guy to help you, let's talk.  I can almost always find mutually agreeable terms with borrowers who wish to hire me.

 

-          The Buck Stops With Me – Who would you rather have fighting for you: an employee of a company, or the founder and owner of the company?  With me you will always get the latter.  All decisions are made by me, all work products are produced by me, and all negotiations are performed by me.  When you hire me, I will handle all aspects of your file from start to finish, so you never have to worry about getting passed to a junior, less experienced employee once you engage my services.

 

-          The Only True Insider – To my knowledge, no other SBA Workout Consultants can claim they know the process from the inside.  I worked for banks for 11+ years, including 2 overseeing a team of workout officers that serviced a $400 Million SBA loan portfolio.

 

-          100% “Above Board” – The basis for a settlement is honesty and offering full disclosure, and I will never advocate a strategy that deviates from that premise.  Schemes like selling your business to a friend, an associate, or to a new corporation (which is owned or controlled by you, a friend, or business associate) are all fraudulent.  If you aren’t telling your bank the whole truth about the relationship between you and the buyer, you are probably doing something wrong. 

Thanks for stopping by, and feel free to email me at Jason@jasontees.com or call me toll free at 1-877-436-4533 with any questions you might have.

Sincerely,

Jason Milleisen

Founder & Owner, Distressed Loan Advisors

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Questions To Ask A Potential Debt Settlement Advisor

1) Are you experienced in financial statement analysis (both personal and business)? (Note: as a former banker with 11+ years experience, I routinely analyzed all types of financial statements, tax returns, and personal financial statements.  As a consultant, I know exactly what the banks and SBA focus on when looking at your financial info.  It's important to note that many SBA settlements go through intermediaries such as a bank, so there is no direct negotiation going on with the SBA.  This fact makes it crucial that your SBA expert have a strong grasp on how the SBA thinks.

2) Have you ever settled the type of SBA loan I have? (Note: there are a number of SBA loan types (504, 7a, and Express are the most common), and they are all settled in different departments, and therefore settlement offers are viewed differently in different SBA departments.  Not understanding the difference between all the loan types could mean your consultant is "winging it").

3) Will I be working with the business owner who is featured on your website? Or will I be assigned to someone else? (Self promoting note: I personally handle all my client's files).  If so, what specific SBA settlement experience does the person handling my file have?

4) What specific experience do you have that qualifies you as an SBA settlement expert?

5) Can you provide a list of SBA loan settlements you've obtained for clients?

6) Do you have any literature (website, blog, pamphlet etc) where I can get a better feel for the depth of your SBA settlement knowledge?

7) Is SBA settlements all you do, or do you focus on a number of areas? (Note: 99% of my business is SBA settlements.  I live it and breath it all day, every day. That's what makes me an expert).

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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Did You Hear What That Attorney Said About Me?

I was just reading a website for a lawyer who is trying to perpetuate a huge myth when it comes to settling SBA debt.  The website said:

 "...smart business owners do not rely on self-described "consultants" who can only whisper in the client's ear about what they think should be done, consultants who cannot so much as speak with the bank on your behalf."

Let's break the above statement down:

1) Why the Condescension? - Since I am a consultant, it only makes sense that I describe myself as such.  I'm not clear on why being consultant is a bad thing.  It basically looks like this guy is attempting to downplay my ability to settle your SBA debt.  After all, I'm a "self-described" consultant and he's a fancy lawyer.  Putting titles aside, what makes this person more qualified than me to settle SBA debt?  I post my results right on my website, have many testimonials, and have authored 100+ articles about SBA debt settlement.  On the contrary, the extent of this attorneys website with regards to SBA settlements is a simple, one-page site with very little info about what makes him an expert, and how many SBA loans he has actually settled.  Let's face it, "smart business owners" are savvy enough to know that passing the bar exam and throwing up a website does not automatically transform someone into an SBA settlement expert.

2) Let's Separate Fact From Fiction - To claim that I cannot speak with the bank on my client's behalf is FALSE.  I know this because I speak with banks (and attorneys who represent banks) every single day.  Let's drop this "I'm am a lawyer and possess special powers" routine. 

Here's another important fact to note:  Unless the borrower resides in the area where this attorney is licensed to practice law (usually within one state or county), he has no more ability to represent you in court than a consultant does. So really, for the vast majority of SBA borrowers, the fact that this gentleman is an attorney is of little value, especially when you consider that a settlement is largely a financial matter (that requires a strong finance background, not a legal background) and usually never reaches the point of litigation!

In summary, if an attorney wants to compete with me in the SBA Workout business, that's fine.  But let's compete based on the facts, and let the client decide who can do the best job.  I am confident that anyone who really evaluates our credentials will easily see which one of us is truly an expert when it comes to SBA settlements.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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Settling With The US Treasury - In Most Cases, Don't Even Bother

 

There is a company out there claiming to be experts at working through the settlement process, specifically when it comes to Treasury.  I had a prospective client call me, and when they told me how much they owe, I told them there was almost no chance to settle.  Why?  Because the Treasury doesn't really negotiate.  Sure, they will promise to consider your offer, but first you'll need to give them all your financial info.  That's more of a convenient trick to get their hands on all your personal financial info.  Apparently this company of "experts" claims they will review the file to ensure the paperwork was processed correctly.  Or something.  I told the prospective client to find out what percentage of clients end up getting out of the debt as a result of this company's "expert review".  I'd venture to guess the majority of clients end up shelling out cash only to have this company tell them that they were not successful.

 

Anyway, back to the Treasury's playbook.  In most cases, you will submit your info, and they will completely disregard your offer and come back with a counteroffer that you will never in your wildest dreams be able to afford.  Usually, they want somewhere in 50% to 80% range of what you owe (inclucing the 28% penalty, so as compared to the amount you actually owed, it's even a higher percentage).  Alternatively, they will ask you to pay the entire amount via installment payment over 3 to 5 years.  Once again, a joke.

 

The only settlements that have a prayer are usually those who owe less than $100K.  In those cases people can often find a way to put together enough to settle.  But the guy who owes $500,000 or $1,000,000.  Forget about it.  One would think it would make sense to actually tie the amount they would settle for to an amount that you could actually afford.  The banks do that.  The SBA does that.  The Treasury doesn't do that.

 

One of these days, I'm going to start firing off letters to people in the government to let them know that their Treasury is letting hundreds of thousands (if not millions) of dollars walk out the door every single day because of their completely short-sighted approach to collections.  I have a client that owes $1 Million.  He can offer $100,000.  Rather than make an intelligent decision, the Treasury will reject this offer.  My client will file for chapter 7 bankruptcy, and they will get nothing.  That's the financial equivalent of a really pretty girl asking you out for a date, and turning her down because you are holding out for Heidi Klum.  So good luck Treasury, I hope you enjoy sitting by the phone waiting with baited breath for Heidi to call.

 

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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Worst SBA Workout Advice I Ever Heard

Over the past few years, I've gotten calls from all corners of the country about people's issues when it comes to SBA loans.  During the course of some of the calls, people reveal that they've spoke to an attorney or another consultant.  Some of the time, I end up just shaking my head because of some of the advice that's been doled out.  Here are some of my favorites:

1) Sell your business to yourself or a friend, settle your personal guarantee, then buy it back later.

My Comment: This is not a "sophisticated strategy", it's fraud.  If you were to explain the details of this shady maneuver to your bank, I guarantee the bank and SBA would shoot it down.  I'd venture to guess that whoever pitches this scam won't advocate full disclosure to the SBA because they know what they bank would say.  Trust me, if it were legit, I would do it too.  What these guys are charging for this "service" is obscene. 

2) Ignore your lender for a while, and at some point they will be willing to settle for less than they would right now.

My Comment:  This advice usually comes from a CPA or attorney who has never handled and SBA settlement before.  The problem, you see, is that they are giving the exact opposite advice they should be.  The best settlements I've had all happened at the time when the bank was still servicing the loan.  If you ignore the bank and hold out for a pennies on the dollar settlement, you'll be waiting forever.  Once the bank deems your account to be uncollectible, they will refer it to the US Treasury, who will add a hefty 28% penalty to your loan balance, then demand at least 50% of the loan balance (recently I've been hearing as high as 80%).  Trust me friends, settling sooner than later will almost always be your best bet.

3) Don't do a short sale on your building unless it includes a release of your personal guarantee.

My Comment:  This just shows ignorance of the process.  The SBA REQUIRES that the short sale be consummated before an Offer In Compromise can be submitted.  Sure, we can argue until we are blue in the face about how unfair that is, but it won't change the facts.  The fact is that the SBA won't negotiate your OIC until the building (on 504 loans) or assets (on 7a loans) is liquidated.  I've seen people walk away from sales, thinking that SBA would blink.  They didn't.

4) You need to submit an OIC in order to get a lien released from your home following a chapter 7 personal bankruptcy.

My Comment:  Ummm, no.  That's wrong.  Once your personal guarantee is discharged in bankruptcy, an OIC is not needed in order to get a lien released from your personal residence.  In fact, if your lender is a preferred lender (most major SBA lenders are), the SBA doesn't need to even know about it.  In fact, their regulations specifically that that a notification isn't even required.  To get a lien released, only the bank needs to agree to it, and there should be no personal information disclosed by the former guarantor since he/she is no longer personally liable.  In other words, the personal financial situation of the homeowner is not relevant and the bank should not be asking for it when it comes to lien releases.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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Is an Offer In Compromise Required For A Lien Release?

The determining factor in whether you need to submit an OIC in order to have a lien on your home released (that was placed in connection with an SBA loan) is usually whether or not you are personally liable for your SBA debt.  Pretty much every SBA loan requires personal guarantee from the business owners, so if you had an SBA loan, you probably personally guaranteed it. 

So to summarize:

- If you are personally liable, you will likely need to submit an OIC since you will need to negotiate the release of your personal guarantee and the lien on your home simultaneously.

- If you are not personally liable, you do NOT need to submit an OIC in order to get your lien released. Preferred SBA lenders can make this decision WITHOUT notifying the SBA or seeking SBA approval. 

There are two common scenarios that would result in you not personally guaranteeing the debt: 1) you filed for personal chapter 7 bankruptcy, and the debt was discharged, or

2) you pledged your home as a favor to a friend/family member who could not otherwise qualify for an SBA loan (I see this a lot....typically a parent pledges their home for a child who is starting a business.

There is always confusion about this topic.  I even get calls from people who tell me their bank or attorney said they need to submit an OIC, so the confusion is not just limited to borrowers.

 

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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Lots of Jargon, Little Content

 

Every so often, I peruse the website of competitors to see their "pitch".  You know what I mean...their case as to why they can help a struggling borrower better than me and everyone else.  This morning I was reading the site of a law firm who was playing the "we're highly trained ninja lawyers who possess the ability to pillage and destroy all SBA debt" card.  Here are my "take always":

1) It's unclear to me how long they've been doing this, or what kind of results they've actually achieved for their clients. I suppose if my experience was limited, I'd avoid sharing that info too.

2) There is LOTS OF IRRELEVANT jargon designed to convince people that a non-attorney simpleton couldn't possible understand the delicate intricacies of SBA settlements.  It looks to me like they found the SBA SOPs (Standard Operating Procedures) and wrote a book report about them.  Lots of fancy language, but few explanations in terms of what it means to you, the borrower. 

Here's a good example of jargon that sounds good in theory, but in reality applies to very few borrowers: "while you don't need an attorney to represent you, a non-attorney cannot represent you before the SBAs Administrative Office of Hearings and Appeals."  If I didn't know any better, I'd be impressed.  But I do.  So I'm not.  The truth is that 90% of the time we are able to work out a settlement directly with the lender or directly with the SBA.  And beyond that, I've never heard of a borrower having their debt settled as a result of going this route.  So while their advantage over me sounds good, but it's not likely to be a factor in the vast majority of cases.

3) There is a MAJOR FACTUAL ERROR in their FAQs section.  They claim that an SBA loan can rarely be settled unless the business is closed.  As I noted earlier, it's clear that they read the SBA rules, because that is actually what the rules say.  But the fact that they say this shows their lack of experience.  There is one huge exception to the rule that the business must be closed.  It's called a 504 loan.  If the real estate associated with an SBA 504 loan is sold, they WILL consider a settlement even if the business is still open.

4) They say "After you schedule an appointment, you consult with a dedicated SBA OIC lawyer who helps you through your legal battle."  Cool, but here's the thing: most OICs are not legal battles.  In fact, most settlements are worked out with no attorney involvement at all.  At the end of the process, you can have ANY attorney review the settlement agreement and it will cost maybe an hour of billable time.

Here's the bottom line, as I see it.  If you were learning to hit a baseball, would you rather seek guidance from the guy who read book about hitting a baseball, or would you rather learn from the guy who actually played baseball?  In case you missed it, I'm the latter.  I worked for an SBA lender, so my knowledge goes beyond what you can find on the internet about the process.  I've lived it, and know that there are differences between what's written in the "rule book" and how the rule book is applied in the real world.  But if you like fancy jargon, I'd be happy to throw out some nebulous yet useless terms that have little impact on your situation.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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The Role of Luck In SBA Offer In Compromise

Back when originally took your SBA loan, you had no idea that your business was going to collapse in spectacular fashion.  And really, how could you know, since the demise of your business had nothing to do with you, and everything to do with the economy.  Since the thought of having to settle never really crossed your mind, you never stopped to wonder how it would all play out if the you-know-what hit the fan.  So what's my point?

 My point is that when it comes to SBA Offer In Compromise, who you borrowed from can make all the difference.  Since you had know way of know how friendly or unfriendly your lender would be when things fell apart, luck certainly does play a role.  If you borrowed from a large SBA lender, chances are they have a big workout department and are willing to make reasonable business decisions.  If you borrowed from a smaller bank who doesn't do a lot of SBA lending, you will likely be required to jump through many more hoops. Who knew? 

 But wait, there's more.  Here are few other factors that can make or break your settlement:

 - The workout officer (for either the bank on the SBA).  Some workout people are fair and reasonable.  Other got picked on at recess when they were kids, and see their job as a way to get back at the cool kids. (Self-promoting note:  I have good relationships with many of the workout officers around the country.  If they have worked with me before, they know I encourage fair offers from my clients, and submit thorough and well articulated settlement packages.)

 - Where your file is referred to.  Not all SBA offices are created equal, and even though they have the same rules on paper, they most definitely do not follow the SBA OIC criteria.  Some will only accept lump sums, others will allow monthly payments.  Some stick to rigid minimums in terms of the amount they will accept, while others will based it solely on the guarantors ability to pay.  Some requires tons of paperwork, others want the bare minimum.  (Another self-promoting note: having a guy like me on your side who knows the protocol of each office can save you major headaches, and of course lots of money).

 Don't get me wrong folks. When it comes to SBA loan settlements, your situation absolutely plays a factor, but I thought it would be helpful to make everyone aware that while an OIC is always judged based on your personal financial circumstances, who is evaluating the offer is a factor can be as big a factor as what it says on your personal financial statement.  For that reason, it's extremely important for you to submit an OIC that is as close to perfect as possible.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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They Won't Put Me In Jail, Will They?

Defaulting on your SBA debt (or any debt, for that matter) is a stressful experience for most people.  Fear of the unknown can really wear you down.  Will they take my house? Will they empty my bank account? Will they garnish my wages?  Will the shut my business down?  Here is a question you may not have considered: Will they put me in jail?

Before you find a ledge to jump from, let me reassure you - - chances are you will NOT go to jail.  Simply defaulting on a loan is not a good enough reason to lock you up.  Imagine how crowded the jails would be if that were the case.  However, I did recently speak with a gentlemen who spent time in prison as a result of an action he took in connection with his SBA loan.  So what did he do?  He lied.  He provided the bank with information that was false, and they found out, and sent him to jail.

When I heard his story, I immediately thought of all the people who call me and want to know if selling their business to a friend/family member/business associate/themselves is the right way to settle their SBA debt. For those who haven't read any of my other articles on the topic - the answer is no.  Pretending to sell your business when you intend to buy it back at a later date as part of scheme to settle your personal guarantee is fraudulent.  This means if you attempt to intentionally defraud the SBA and your bank, there is a real possibility of going to jail like the guy I mentioned earlier.

So what's the moral of the story?  Be honest. If a consultant has told you about a "strategy" that is too good to be true, it probably is.  If you play is straight and do it the right way, the worst case scenario is that your OIC gets rejected.  If you choose to intentionally deceive your lender and the SBA, the worst case scenario is jail.  If that doesn't convince you to do the right thing, I surely don't know what will.

While it can be awfully tempting to use misdirection when it comes to your OIC, keep in mind that the person you are dealing with has done lots of OICs, and they can smell it when something is askew.  The more something seems "off" the more likely it is that they will begin to dig in order to verify your story.  All you need is one little stumble, and the settlement of your defaulted SBA loan may be the least of your problems.  More to the point, some banks are now requiring "Arms Length" affidavits, which you and the buyer must attest to the fact that you are engaging in a legitimate transaction. 

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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The Three Most Common Misconceptions About SBA 504 Loan Workouts

Here is a quick synopsis of the SBA 504 loan:

1) There is a "regular" commercial loan in 1st lien position that is made by a bank, and finances 50% of the project cost.  This loan does NOT have an SBA guarantee, but the lender who is in 1st position is in a very strong collateral position (1st lien and a 50% loan-to-value at loan inception).

2) The SBA loan (originated through a CDC, or Community Development Corporation) is always in a 2nd lien position, and typically finances 40% of the project cost.  This loan is 100% guaranteed by the SBA, so the CDC has minimal financial risk.

So what are the most commons error I see? 

1) The first misconception is the belief that if the 1st lien holder forecloses, the SBA obligation disappears (hint: it doesn't)  While it's correct that in a foreclosure scenario, the CDC/SBA 2nd lien could get wiped out, business owners always forget about that pesky personal guarantee that they signed.  So in other words, if the 1st lien holder forecloses, it will eliminate the CDC/SBA security interest in the real estate, but it doesn't mean that the personal guarantors are off the hook.  In order to be released from the obligation, guarantors need to submit an Offer In Compromise.

2) The second misconception is that an Offer In Compromise (i.e. Release of your personal guarantee) can be negotiated before a short sale is completed (hint: it can't).  If you want to sell your building, but the value is less than the amount you owe, the SBA is usually pretty accommodating in terms of releasing their lien.  What they won't do, however, it release your personal guarantee in conjunction with the short sale.  The short sale and the Offer In Compromise are two separate events.  Many borrowers don't like the idea of closing on a short sale without know how much they will be able to settle for, and I get that.  All I can tell you is that until the liquidation of the real estate is complete, the SBA will not agree to an OIC.  If you think threatening not to do the short sale will change their mind, thing again.  I've seen deal blow up because the borrower thought the SBA would blink first (hint: they won't).

3) The third misconception is that proceeds from a short sale can be used to make an Offer In Compromise.  The purpose of the OIC is for the guarantors to make an offer in exchange for the release of their personal guarantee. In order to accomplish this, an offer needs to be made that pays the SBA a sum that is above and beyond the collateral they already have.  In other words, sending the SBA the proceeds from the sale of collateral that was pledged for the loan (in most cases, this is the real estate) is not sufficient.  The SBA already has a lien on the real estate, so if you offer them the proceeds from a short sale, you aren't really offering them something they couldn't get anyway by foreclosing.  True, your short sale might fetch a price higher than what the SBA could sell if for in foreclosure, but unfortunately the SBA does not take that little tidbit into account.

Overall, the navigation through the short sale of your real estate, and subsequent settlement of your SBA debt can be daunting.  There are many nuances that, if not fully understood, can really give you a major headache.  Having the right advisors can make all the difference.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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Settling SBA 504 Loans

About half of the calls I get are from people who have SBA 504 loans.  Some have sold their building, others have been foreclosed on, and yet other are falling behind on payments and don't know what to do.  The purpose of this article is to explain how the process plays out during a typical 504 loan workout.

First and foremost, if you expect to have the loan balance reduced, the building needs to be sold (either via short sale or foreclosure).  The SBA will settle 504 loans even if your business remains open (note: this is not the case with 7a loans) so the major pre-requisite for settling a 504 loan is the liquidation of the real estate that your 504 loan financed.

If you plan on doing a short sale, there is a major point that needs to be understood.  The sale of the building and the settlement of your personal guarantee ARE TWO SEPARATE EVENTS.  Many borrowers are surprised to get letters from their CDC or from the SBA following a short sale because someone erroneously told them that they would not be liable once the real estate is sold.  This is most certainly not the case.  While the short sale typically pays down most, if not all, of the 1st lenders debt, it usually leaves a balance on the SBA loan that needs to be dealt with.  The reason it needs to be dealt with is because in 99.9999% of cases you signed a personal guarantee.  This means you are personally responsible for the debt, even if the business goes under.

People often gripe that it's not fair that the SBA won't negotiate a settlement of the personal guarantee in conjunction with the short sale.  And they are probably right.  But that doesn't mean that the SBA will be flexible on this point.  I've seen people threaten to walk away from a short sale unless the SBA approved their Offer In Compromise before the short sale closed, and to their surprise, the SBA didn't blink.  The deal died, and the debt didn't get settled (shameless plug: situations like these are when a guy like me comes in handy.  I know what points are negotiable, and which ones are not).

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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When They Say "Jump", You Say...

No, friends, this is not a riddle.  When your bank or the SBA says "jump", you most definitely should be saying "how high?" Better yet, you may even want to anticipate how how they will ask you to jump ahead of time.  Let me explain in more concrete terms.  First, when they ask you for paperwork, pretend that paperwork is a life or death matter.  I am often blown away when a client takes 2 weeks, 3 weeks, or a month to send requested paperwork to the bank. When a settlement could save you tens or hundreds of thousands of dollars, you should be treating the request as if they are giving away FREE MONEY, and the only way to get it is to get them the paperwork as quickly as humanly possible.  Otherwise, you risk having your file fall to the bottom of a pile, or worse, you end up annoying your workout officer, who feels that you are not taking your OIC seriously.

Often times, the OIC process can take a while (a looooong while).  As a result, by the time the SBA actually reviews your OIC, some of the info provided is stale.  Pretty annoying right?  Agreed.  With that said, the best way to handle it is to swear at your computer, punch a wall, or kick a chair.  What you should NOT do is protest the request for new information.  Remember, an SBA Offer In Compromise is not a right, so they don't owe you anything.  You are asking them for a favor, so as the one's who would be granting the favor, it would be wise to accept their request with a smile, and then get the info to them as quickly as possible.  I've had clients who want the SBA to be investigated for fraud because their file got lost.  While it was pretty annoying to me too, I cautioned my client not to cut off his nose to spite his face.  Every decision you make when working on an OIC should be done in order to make your bankers life easier. Timely, complete, and accurate info will go a long way towards doing that.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Offer In Compromise: [Insert Tale of Woe Here]

I have been helping borrowers out of sticky situations for a number of years.  Perhaps over time I've become a bit desensitized to the financial devastation that most borrowers experience.  I used to listen patiently as the client explained in detail how or why it all went wrong.  These days, I ask the client to "cut to the chase".  Why? Because in most cases, whether or not you can settle has little to do with the circumstances that led you to default.  Here are some examples of what I hear a lot of:

1) I bought a business and the seller violated the non-compete.  For some reason, I hear this a lot from CPAs.  The buyer purchases a practice, and months or years later, the seller pops up the next town over offering their services to their former clients.  Obviously, this is not good for the buyer.  The bad news, however, is that there is not much the bank can do to help.  To make matters worse, the bank and SBA will not be willing to forgive your loan because you were defrauded by the seller of the business.

2) My partner screwed me.  Many people call and want to get half the loan forgiven because their 50% partner wronged them in some way.  Unfortunately, in most cases guarantors are unlimited, meaning each partner is 100% personally liable for the debt.  So when you tell the bank of your bad luck with your partner, the response will be "sorry to hear that, but you need to find a way to honor your obligations".

3) The economy ruined my business so you should let me go.  Some people think that a settlement means that you are having a rough time so the bank simply let's you walk away because they feel bad for you.  Not the case.  The concept of debt forgiveness means that in exchange for payment, the lender and SBA will forgive a portion of the debt.  How much they will accept depends on many factors, but the only absolute is that you will not be released unless you can offer a material payment.

The purpose of this article is to drive home the idea that when it comes to SBA Offer In Compromise, your current financial situation will be the main focus, so your energy is best spent on that rather than trying to spin a sad tale of woe.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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Can I Sell My Business To My Friend?

Lately, I have been getting a lot of calls with a similar theme, so I figured I would offer my thoughts for all to read again (I have addressed this issue is past articles).  Most of the calls about this particular topic go something like this:  "I talked to this other consulting firm who claims the right way to do an OIC is to sell my business to a friend, a business associate, or a corporation owned by me.  Something about that doesn't sound right, so I wanted to speak with someone else who offers these kinds of services."

After I am done shaking my head, my response is always the same:  If the purpose of your action is to dupe the bank and the SBA into thinking your business has been sold or closed, knowing full well that you intend to re-acquire the business or business assets, that is fraud.  Plain and simple.  I'll repeat that.  It's fraud.  It's not a loophole.  It's not a "sophisticated workout strategy".  It's fraud.

So now your head is spinning.  Those guys are saying one thing, I'm saying another.  Who to believe?  Here are my arguments for you to consider.

1) If the SBA and banks were agreeable to this sort of idea, wouldn't it just be easier to write down the loan balance?  In other words, if this were a legit strategy that lenders are willing to get on board with, why the need to jump through these hoops?  The answer is simple:  if the SBA and bank knew that the relationship between the seller of the business and the buyer of the business was NOT arm's length, they would have some serious reservations.  If they knew that your sole reason for engaging in the sale is to temporarily transfer ownership so that an OIC could be negotiated, they would definitely reject the sale.

2) If this were a legit way to get your debt reduced, why doesn't everyone do it?  For the most part, people realize there is not something quite right about the whole concept, so the conversation ends there.  Are there some people who try it and get away with it?  Probably.  Are there people who get caught and end up worse off than when they started?  Absolutely.  Conveniently for the consultant, it's the borrower who is left holding the bag.

Overall, I firmly believe that the right way to settle debt is to be forthright and honest, and after doing this for  number of years, truly believe that fair and reasonable settlements can still be achieved without resorting to deception.  There is a world of difference between putting a positive spin on a situation, and blatantly lying.  I once heard a good quote that sums it up nicely:  the great thing about telling the truth is that you never have to worry about which version of your story you previously told.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Default Workout: It's Often Not What I Know, But Who I Know

This article is a spin off from my recent article titled "Why Do I Need You To Fill Out Some SBA Forms?".  In that article I explained, as best I could, why the SBA Offer In Compromise process is about much more than just filling out some forms.  I'm a pretty cautious guy, so I can relate to potential clients who have apprehensions about engaging the services of a consulting such as myself.  Today, I'm going to explain how I often rely on relationships with people who works for banks, the SBA, and Treasury to get fast, fair and accurate decisions.

There is an area of the SBA known as "Treasury Offset".  They are the last stop before the file is referred to the Treasury Department (i.e. where defaulted loans go to die).  The letter that the Treasury Offset are sends has SBA letterhead, and gives the borrower 60 days to submit an Offer In Compromise.  Years ago, when I first started out as a consultant, I would simply call the phone number on the letter and it would ring and ring and ring.  And then ring some more.  If I was lucky, I'd get someone one the phone who was clearly the low man on the totem pole, and that made the whole process really difficult.  Along the way, I was lucky enough to come into contact with some more senior people within that group, including the supervisor.  Now, when a client comes to me with that letter, I go straight to the people who I know are fair, competent, and responsive.  They like working with me because I am courteous to them, provide comprehensive packages, and I am very responsive to them when they need something.  In short, I make their job very easy.  I don't waste their time with "low ball" offers or by providing incomplete info, and in return, they make quick decisions that I almost always deem to be fair.  Just to give you an idea of why it matters so much, I recently had a client who had been working with someone else within that area on their own.  That employee was so incompetent, the offer had been rejected, but they never bothered to tell my client and referred the file to the Treasury.  Only after I stepped in and reached out to the supervisor of the group (who I have worked with extensively) were were able to get the situation resolved.

There are also situations, when a file is still with the bank who issued the loan, when my relationships come in handy.  Every so often I come across a banker who doesn't know much about the SBA settlement process.  As a result, they make up excuses about why a settlement cannot be worked out.  In those situations, I try my best to diplomatically educate the banker, but if they are stubborn and don't want to admit they are wrong, I find it necessary to reach out to people that are high up in SBA management whom I used to deal with in my time as a banker.  (Note: I don't like going over people's heads, but in some cases it can't be avoided.)

Overall, the point of this article is that in many cases, reaching a fair settlement within a reasonable period of time is just as much about who you know within the system as it is about the offer itself.  Working with someone who has done settlements with banks, CDCs, the SBA, and the Treasury will ensure that no matter who you are dealing with, that you will experience the benefit of past experience, while also ensuring that your situation can be escalated, if need be, to someone who has the power to make things flow more smoothly.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Offer In Compromise: Use It Or Lose It!

It seems to be a fact of life that when people don't know what to do, they do nothing.  The workout and settlement of SBA debt appears to be no exception.  I have a client who purchased a building via the SBA 504 program.  The economy killed his construction business, and he eventually did a short sale on his commercial building and lost a huge sum of money in the process.  Following the sale, he ended up owing over $1Million to the SBA.  Such an event would send even the most level headed entrepreneur into a tailspin, so it was not surprising to hear that my client took a "wait and see" approach when it came to dealing with the massive shortfall on the SBA debt.

My client figured that his local CDC (the local organization that serviced his loan) would be in touch soon enough, so until then, he would just sit tight.  Many people take this approach, and in many cases, it works out fine.  But not in this case.  His local CDC, as it turned out, was sending letters that were inviting him to submit an Offer In Compromise package to the old building.  He was not having mail forwarded, so he had no that the CDC didn't have his new address.  Since the CDC never heard from him, they promptly referred the file to the US Treasury.  In other words, they sent his file to the place where loan settlements go to die.

Just yesterday, after 3 months of begging and pleading, we got word back that the SBA is not interested in taking the loan back from the Treasury.  And with that decision, any chance to settle the debt went out the window. 

So what can we learn from this story:

1) Being proactive about your SBA workout is crucial, and you never want to assume that your lender will contact you eventually.

2) Even though my client caught a bad break when the CDC sent letters to the wrong address, the SBA and Treasury have no sympathy.  Had he been proactive, he might have settled his debt for a reasonable sum.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Loan Settlement and Reasonable Expectations

I got an email this morning from a guy who owes $36,000.  He read on my website that I had a client who settled for 6.6% of his loan balance.  So of course, he wants that deal too.  The only problem is that his situation was not an "apples to apples" comparison.  The client he was looking at, you see, had owed about $1 Million.  Based on that, this potential new client assumed that 6.6% must be an arbitrary threshold that the SBA will settle for.  I explained to him that while yes, my client paid only 6.6% of his loan balance as a settlement, that situation should not be used as a guide.  Why?  Two reasons:

1) Even though that client paid only 6.6%, he still paid over $50,000 in REAL DOLLARS.  I explained that regardless of how much someone owes, $50K is a material sum of cash as opposed to his situation, whereas 6.6% would amount to less than $3K.

2) Every single situation is different.  $50K was all the money that my client had available to him, so the offer was deemed acceptable.  The gentlemen who was inquiring about my services seemed to think that the SBA will negotiate for the sake of negotiating, which they will most certainly will not do.

This gentleman went on to say something that really annoyed me.  I had quoted him a fee, and he emailed me back and said that while I "advertised" my successful settlements, I never mentioned the fees that go along with it.  Hold on there, cowboy.  Two things:

1) Did this guy think that I work for free?  Why was it a revelation that I charge for my services? It was no surprise that when we got on the phone, he tried to force feed me his entire financial situation, and pressed me for a recommendation of how much he should offer as a settlement.  With as much diplomacy as I could muster, I explained that I don't get into that level of detail on a consultation for two important reasons: 1) I would need to see all of his financial information (PFS, tax returns etc) before I could advise as to what a reasonable settlement offer would look like, and 2) the advice he was seeking is that advice I offer to paying customers.

2) The settlement results I list are not advertisements.  They are actual settlements that I have obtained on behalf of my clients.  Do I list them to demonstrate my proficiency at settling SBA debt?  Of course.  But in no way, shape, or form, do I intimate anywhere on my website that all borrowers should expect the same results as my absolute best settlements.

I think it's safe to say that based on the accusatory  and condescending nature of this gentleman's emails, I won't be hearing from him again.  And that's fine, because in my experience, when a client enters into the situation with unrealistic expectations, that's a recipe for disaster.  I am always very careful to explain to clients that settlements are difficult and there are never any guarantees, but some people (like this guy) simply cannot be pleased.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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A Story of SBA Settlement Success

Today's article is about a client I have who recently, after a couple years of financial turmoil, has seen the light at the end of the tunnel.  To be more accurate, the light at the end if his tunnel is so bright that he needs sunglasses and sunblock.

When he first came to me, Steve (not his real name) owed about $750K.  Things were looking pretty bleak.  He was working for himself, and when his relationship with his partner soured, the business went into the toilet.  On top of that, he was going through a divorce, which only amplified his financial strain.  Despite that, Steve was trying to stay positive, and came to me in hopes that I could help him take the first step towards a financial recovery.  At first, Steve wanted to make payments over time, but since he didn't have consistent income, the SBA was not keen on a payment plan.  The only savings he had to his name was an IRA with about $50K in it.  At first, he was hesitant to liquidate that account, since it represented all he had left in terms of savings.  I explained to Steve that while it wasn't desirable to use his only savings, it was the best alternative in a bad situation.  Sure, he would have nothing left, but he'd also have $700k forgiven if the offer was approved.

After some lengthy discussion, Steve decided to offer the $50k in a lump sum, and the SBA accepted it.  It's fair to say that he winced a little when he had to write that check, but it turned out to be the right thing for him to do.  6 months later, Steve's new business venture had a big score that yielded a huge six-figure pay day.

So why was the settlement the right way to go?

1) By settling with the CDC/SBA, the file stayed out of the hands of the US Treasury.  Had the file been sent to the Treasury, they would have added a 28% penalty to the $750K and demanded a settlement of about $400K.  By settling sooner than later, he saved himself about $350k (although, let's admit it, if it went to the Treasury he could have never settled) and his future earning went into his pocket instead of the SBA or Treasury.

2) Instead of filing for bankruptcy and ruining his credit, he opted to settle.  His credit was not hurt by the settlement (most SBA loans don't show up on personal credit reports), yet he is no longer personally liable for any of the debt.  By not filing for bankruptcy, he was able to start a new business and will be able to finance his business in the future (something a bankruptcy would surely get in the way of).

3) Once the settlement was paid, my client was free to go earn money with no risk of having it garnished or levied.  His six-figure score allowed him to take care of some residual debts, and he now has a very bright future ahead of him, and he will never have to look over his should and wonder if (or when) the SBA, Treasury, or a collection company will come calling for his SBA debt.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Default: "Why Do I Need You To Fill Out Some SBA Forms?"

One of the most common questions I get from clients is "why should I pay you to fill out some forms when I can do that myself for free?"  I'll admit, when I was working as a workout officer for a bank, the same thought crossed my mind when borrowers were using workout consultants.  But now, after years of working for myself, and after putting together countless SBA Offer In Compromise packages, I can say with certainty that I do add lots of value to the process, which certainly includes the preparation of paperwork, but also includes a methodical thought process that allows my clients to make offers that have a great chance of being approved.

It's important to keep in mind that when it comes to completing the required forms, it's not enough to simply complete them.  They need to be completed in a way that fully supports your argument.  Just to be clear, I am NOT saying that you should change the facts to support your argument.  What I am saying is that the facts need to be presented in the right light in order to make it easy for decision makers to see why your offer is better than any other alternatives.  Whenever a client attempts the SBA OIC paperwork on their own, very rarely do I see it prepared in the fashion that I'd recommend.

 In general, when clients attempt to complete the paperwork themselves, I get one of two variations:

1) The Half-Hearted Attempt - When asked to fill out paperwork, some people approach it with the attitude that the forms don't really matter, and that filling out the paperwork is a nuisance.  Given all the money at stake, it's unclear to me why someone would take this approach, yet it still happens.  They do things like "guesstimate" account balances, and leave whole sections blank.  When it comes to explaining what they are offering, why they need to settle, and why their offer is worth considering, they make blanket statements such as "I'm broke" or "I don't make much money".  When you make such a weak effort, it's apparent to your banker and the SBA when you aren't making a serious attempt at stating your case for a settlement.  As a result, they won't take the offer seriously.  Also, when you "guesstimate" figures, it's fairly obvious that the figures you are presenting are not accurate.

2) Quantity, Not Quality Info - Many borrowers have the sincere desire to be thorough on the OIC paperwork, but they end up doing what I refer to as "brain dump".  Not knowing exactly what the focus of the OIC argument should be, the client writes a short novel about their situation.  The problem with that is your banker doesn't have the time or inclination to read a short novel.  With 100 other files to deal with, bankers want a clear and concise explanation that tells them everything they need to know in order to make a decision without the extra fluff.  Writing a lengthy narrative can result in important facts getting buried beneath reams of irrelevant ramblings.

In summary, the benefit of working with a SBA workout expert is that an expert can ensure that your OIC paperwork is thorough, concise, and comprehensive.  They will include all the facts you need, and leave out the miscellaneous info that will only serve to water down the important facts.  I always tell clients that preparing an OIC is not unlike renovating your kitchen.  Sure, you could do it yourself, but if you hire an expert it's likely that the final product will be of higher quality, and the likelihood of a catastrophic mistake will be greatly reduced.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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A Million Reasons To Settle Sooner Than Later

I recently had a client who owed the SBA $1 Million following a short sale of his commercial real estate (it was a 504 loan).  After the short sale, he got some bad advice and offered a nominal amount to settle, which was quickly rejected.  After rejecting the offer, the CDC (the company that services the SBA loan) referred the file to the US Treasury for collection, and had a 28% penalty added to the loan balance.  Once he was contacted by the Treasury, he reached out to me for help.  Given my experience with the Treasury (i.e. they are unreasonable), I told my client that his best opportunity to settle had passed, and that working something out with the Treasury on reasonable terms would be almost impossible.  My client stated that he'd be willing to pay back the full principal balance of $1 Million.  Surely, the Treasury would not be so short-sighted as to turn away a borrower who wants to repay $1 Million over 12 years, right?  WRONG!

 When we presented our very reasonable offer to repay the principal balance in full, it was quickly rejected.  Instead, the Treasury offered three options, none of which were feasible (or reasonable):

1) Pay them 50% of the loan balance in a lump sum. (Since he had to short sale the building, it's unclear why they think this would be remotely possible.)

2) Make a large down payment, then make payments for 24 months, and revisit the balance at that time.  Just to make matter worse, they also insisted that the 28% penalty would need to be repaid as well.  (We quickly decided this option was no good, as there was no guarantee what would happen in 24 months.)

3) Repay the full balance over 7 years. (They couldn't afford their building, so what reasonable person would think they could afford to pay $1.3 Million over such a short period of time.)

 I don't understand why the Treasury chooses to opt for unrealistic settlement terms.  Such demanding terms might work with smaller loan amounts like $50,000, but for a $1 Million balance, the Treasury might as well save everyone the time and effort and simply not attempt to collect the debt.  The cynic in me thinks that if the debt were owed to a private entity, deals would get done.  But since it's the government, there is little repercussion for having limited success.  I'm sure they rationalize that the debt is with them in the first place because the borrower refused to make a deal with the CDC, and therefore they only get files that are likely to be uncollectible.  What they will never admit is that their predictably minimal success when it comes to collections is due to their own short-sighted demands.  To me, their settlement parameters scream "it's not my money, and I don't care".  How else could you explain their stance on settlements?

So what lessons can be learned from my client's situation?

1) Trying to go it alone (or with an inexperienced advisor) early in the process can result in disaster.  Following a 504 loan short sale or foreclosure, you might only have a limited window of time to settle your SBA debt.  Can I guarantee that involving me will result in a settlement?  No, not 100% of the time.  But I'd be willing to wager that you'd have a better chance by asking for my help then by going it alone.

2) The Treasury makes unrealistic requests with regards to settlements, and the SBA will NOT be willing to step in to help.

3) With regards to settling SBA 504 debt, time is of the essence.  If you are going to sit back and wait for the CDC to contact you, that is a huge mistake.  If the CDC refers the file to the Treasury, you are dead in the water.  You need to be proactive about settling your SBA 504 loan, which means being in constant contact with the CDC, and having an Offer In Compromise ready for submission as soon as the short sale/foreclosure is complete.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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Another SBA Offer In Compromise "No-No"

The idea for today's article came about when I was recently assisting a client with their Offer In Compromise package.  As sometimes happens, I asked my client for a number of documents that I knew that bank would ask for, and over a couple of weeks the documents were emailed to me in drips and drabs.  I never understand why clients don't make assembling important documentation a priority, considering that there are tens or hundreds of thousands of dollars on the line.  The problem, you see, is that the SBA wants all the information for a reason.  The reason is that when you combine all of the information, it paints a fairly comprehensive picture of the borrowers financial situation, so if I don't have all the info, there may be a crucial piece of the puzzle that I don't find out about until the very end.

In my recent client's case, the bank already had a judgment against them, so time was of the essence since many banks will attempt to execute on a judgment as quickly as the law allows.  For that reason, I was anxious to get the settlement submitted.  My clients were not able to get their proof of income quickly , so we decided to submit the settlement offer without tax returns or proof of income because it was unclear how long it would take to get those items.  As expected, after I submitted the OIC, the bank came back and requested 2011 personal tax returns.  They were on extension (not uncommon), and in such cases we provide W2s instead.  So after the personal financial statement had already been submitted, my client sent me his W2 which showed a huge amount of income from the prior year.  Since they had many debts and expenses associated with their defunct business, we were able to piece together a spreadsheet that demonstrated where all the money went (showing why they didn't have much to offer right now).  The problem was that much of the money was spend on "discretionary" items like vacations, toys, and eating out.  When a lender sees that, their first thought is "wow, you owed us $500,000, and you decided to spend $15,000 on a vacation?".  This rubs banks the wrong way, and could be used against you since they can argue that your offer was not made in good faith.

As it turned out, a large part of the W2 was bonus, with the rest being in the form of salary.  The problem was that the salary he earned didn't match the salary my client had written on his personal financial statement.  That, my friends, presents a problem too.  Now we are in a position to go back an revise the PFS that's already been submitted.  This means we will potentially be revising the offer to account for higher income.

So what lessons can be learned here:

1) When you hire an advisor and time is of the essence, sending your documentation promptly will ensure that the settlement strategy will put in place without the worry of surprises (like a huge W2 from last year, or a sizable asset that you forgot to mention).  The worst thing that can happen is to submit information on a personal financial statement that can't be supported.  If you indicate that you make $5,000 per month, but your paystub later shows that you make $10,000 per month, that presents a major problem.

2) When you owe a bank (or anyone, for that matter) money, keep in mind that the expectation is that you are going to make a settlement offer because you are experiencing financial hardship.  Spending your cash on things that you could clearly have lived without indicates to the bank that you could have offered more money, but you made the conscious decision to spend it on non-essential purchases.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Offer In Compromise and the Personal Guaranty

 

I spend my days fielding phone calls from people around the country, almost all of whom have an ongoing issue with an SBA loan.  One of the most common complaints that I hear from people pertain to the personal guarantee, and usually fall within one of these variations:

QUESTION:  I signed a personal guarantee for my friend's business, but I had nothing to do with the business.  Why are they coming after me and not my friend?

ANSWER: When you agree to personally guarantee debt, your have personally committed to repay the debt if the business fails to do so.  In most cases, the bank is under no obligation to pursue the guarantors in any particular order.  The bank can choose to pursue all the guarantors at once, or alternatively, they can pursue the guarantor that they believe has the most assets.  If when the loan was granted, the friend who guaranteed the loan had a significant net worth while the business owner had a minimal net worth, you can be sure that the bank will spend their time and money pursuing the more wealthy of the pair.  While you may not think it's fair that a bank would sue a person who had no ownership interest in the business, that's the reality of a personal guarantee.  This is why agreeing to personally guarantee debt for a friend should never be taken lightly.

 

QUESTION: I personally guaranteed an SBA loan for my ex-spouse.  The divorce decree states that my ex-spouse is solely responsible for repaying the debt, but I just got a letter stating that I am liable.  What gives?

ANSWER: Let me start with my disclaimer: I'm not an attorney, and this is not legal advice.  You should see an attorney in your area for all legal matters.  Now, with that said, I will tell you what I've seen as far as this situation is concerned.  When two people get divorced, it's common to split all the assets and liabilities.  It's important to note that the agreement is between the individuals, NOT THE CREDITORS.  In other words, unless the banks agrees to release one of the spouses, they will pursue both of you regardless of the agreement between you.  Even though it seems unfair, logically it makes perfect sense.  The bank, after all, may have required both spouses to guarantee the SBA loan because both spouses were brining attributes to the table.  Furthermore, if it were possible for one personal guarantor to indemnify the other, this would be a huge loophole.  It would basically mean that if two business partners signed personal guarantees, they could easily get one of them off the hook by establishing an agreement between them stating that one would be handling the loan, and the other was not responsible.

So if a divorce agreement won't help with creditors, what good is it?  Well, if you are the spouse who was indemnified, and your ex fails to make their loan payments, you'd have recourse against your former spouse.  Of course, that won't help you out of the personal guarantee, which is a very tough pill for most former spouses to swallow.

 Overall, when it comes to personal guarantees of SBA debt, you should always ponder the worst case scenario when signing one.  If you aren't prepared to deal with a worst case scenario (they borrower defaults), you should re-evaluate whether signing one is the right way to go.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Offer In Compromise Is A Business Decision

 

When it comes to submitting an SBA Offer In Compromise, many borrowers believe that in order to get their settlement offer approved, they need to explain their tale of woe to the bank in great detail.  I get it: for many people, losing their business (and in many cases their life's savings) is an emotionally traumatic experience.  You put your whole life into the business.  You work 80 hours a week, haven't taken a vacation for years, and you can't recall the last time you gave yourself a paycheck beyond meager amounts needed to put food on table and keep the lights on.  While it's understood that you've been through financial hell, the story of how your misfortune unfolded is not going to be the focus of your bank's and the SBA's OIC decision.

When I discuss this topic with clients, I try not to sound heartless, but since I'm being paid to advise the client, I do need to explain why the story of what led to the business failure is basically irrelevant for two main reasons:

1) Every business that has failed has a story.  Some are a more sad than others, but the basically details are usually the same.  If the SBA were going to forgiven debt based on "hard luck" stories, they would forgive just about every loan that ever defaulted.  I can tell you that's not the case.

2) The main goal of the bank and the SBA is to recover the money that they lent to you.  Their philosophy is simple:  you borrowed the money, and are legally responsible for repaying the debt regardless of how much you lost money on the business.  While it tempting to rationalize that since you lost money, the bank should be willing to share equally in the losses, it's just not how banks view it.  If you don't have the ability to repay the debt in full, then yes, a settlement of your SBA debt may be possible.  But just because you lost $50K on the business doesn't mean that the bank/SBA will will automatically forgiven a portion of your loan.  Even if you strongly believe that the bank/SBA should participate in the losses, you're better off not expressing this to your lender.

Just to drive the point home, here are some common questions and comments I get, along with my response:

Client: I bought my business, and it appears that the seller defrauded me.  The business doesn't make as nearly as much as the seller claimed it would. Will the bank take this into consideration, and will they help me sue the seller?

Me: Unfortunately, the bank won't care that you feel you were defrauded, and they usually are not interested in litigation with the seller.  In many cases, it takes lots of time and money to prove fraud, and since banks have limited resources, that's not a path they are interested in going down.

 

Client: I lost [Insert Dollar Amount Here] on this business!  That was a huge chunk of my life's savings, including my retirement accounts, a home equity loan, and my stock portfolio.  The bank needs to understand this.  I still have savings, but the bank needs to realize how much I've already lost.

Me:  Banks are focused on getting back the money they lent to you.  Sadly, how much you lost is not as much of a factor as the amount of money you have remaining.

 

So if the background story doesn't matter, what does matter?

Debt forgiveness, in most cases, is a business decision.  This means that the bank chooses the option that will result in them recovering the most money, so charity is not part of the equation.  Many borrower's may think that philosophy is not fair, but it's the reality of the situation when it comes to the SBA Offer In Compromise.  This is not to say that your banker won't sympathize with your situation, especially if you have a good relationship with them.  Even in such a case, it's important to remember that the SBA has the final say on your OIC, so even if your banker was your mother, they don't have the power to approve your OIC without SBA approval.

 

 

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA OIC (Offer In Compromise): Timing Is Everything

For anyone who has kids, you can relate to this article!  You know how you have asked your kids not to leave their dirty socks on the floor a million times, yet you know tomorrow you are going to walk in their room and find dirty socks on the floor?  That's how I feel about preaching the concept of being proactive about pursuing an SBA Offer In Compromise.

For a number of years, I've told any borrower who would listen that being proactive about your SBA OIC can mean the difference between smooth sailing and the perfect storm.  So what exactly does it mean to be "proactive"?

1) As soon as you fall behind on payments, sell your real estate, or close your business, you need to be in constant contact with your bank and convey your desire to submit an Offer In Compromise.  Do NOT wait for them to call you.  Call them. If they don't call back, call them again.  Email them.  If they don't email you back, email them again.  If you think you are buying yourself time by sitting back and waiting, you are setting yourself up for a difficult situation.  Some bankers, you see, are completely overwhelmed with files. If given the chance, many will simply pass your file over to the SBA or the US Treasury and let them deal with the collection of your loan.  If you get a letter from a collection company, life just went from bad to worse.

2) When your banker asks you for paperwork, make it a priority.  I have a client who has told me three times that his tax returns will be ready "tomorrow".  That was 6 weeks ago.  I can see it coming already.  His bank is going to get impatient, close their file, ship to the Treasury, and the likelihood of a settlement will decrease dramatically.  I've begged and pleaded, but my client just doesn't get it.  He thinks the bank will give him all the time in the world.  If someone was going to give you $500K if you get your paperwork in on time, wouldn't you drop everything to do it?  Of course.  So why, when the opportunity to have $500K forgiven, do some business owners fail to grasp the urgency of the situation?

3) When your banker says "jump", you say "how high?".  There are times in life when you need to swallow your pride and do something not because you agree with it, but because that will get you what you want.  It's true, some bankers will sit on your file for 6 weeks, and then when they finally get around to it, request additional information to be submitted within a few days.  Is that fair?  Not really.  But this person holds your fate in their hands, you should make it your life's mission to make their life as easy as possible.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan

Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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3 Years and $30K Later, No SBA Settlement

I got an email last week from a woman who had contacted me 3 years ago for help with her defaulted SBA loan.  Not unlike many prospects, we had a consultation, and I never heard from her after that.  Not every consultation results in a client, so I had no hard feelings that she chose not to hire me.  That said, I was eager to hear what had happened since then, and in particular, who she had retained to guide her through the SBA Offer In Compromise process.

I asked her to catch me up, and she explained that her husband insisted on using another consultant because a fellow franchisee had used him and got good results.  That consultant has charged her a total of $30,000, and last week the bank obtained a judgment against her and her husband.  Ouch.  Apparently her consultant was dumbfounded that the bank rejected their SBA settlement offer, and stated that it was a highly unusual result.  I delved a little deeper into the situation, at which point I myself became dumbfounded.  Based on her situation, it was clear to me in about 30 seconds why the offer was rejected.  She then offered an insight that I was already aware of: "It turns out that my guy doesn't know anything about SBA settlements".  That, my friends, is an expensive lesson.

To save you $30K in exchange for no results, here is what you should be taking away from this article:

1) When it comes to settling debt, hire a specialist, not a generalist.  If you had a rare form of cancer, you wouldn't see a family practitioner just because your friend uses them, you'd see a cancer specialist.  Along the same lines, it does you no good to have someone who is a debt settlement "generalist" if you have an SBA loan.  The SBA has very specific criteria, and you should not be paying an "expert" to learn the rules as they go.  The number of people who tell me that they originally hired an attorney with no SBA experience really astounds me.  It's not a matter of competence (I'm sure most attorneys are competent); it's a matter of being a subject matter expert about a specific topic.

2) Pay for results, not time.  The reason I charge the majority of my fee only upon a successful settlement is because I know that for most people, they don't want to sink a lot of money into hiring a workout consultant unless they get results.  Hourly rates can end up costing you an arm and a leg while leaving you no better off.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice when is comes to SBA Offer In Compromise, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

 

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3 Myths About The SBA Offer In Compromise

 

1)  The Best Workout Consultants Are Aggressive - If you think that in order to be an effective negotiator, your workout consultant needs to be aggressive and/or abrasive, think again.  While I don't wilt when challenged by a banker, I also don't actively seek confrontation.  As in life, the best way to reach a mutually agreeable resolution is to be respectful.  Anyone who tries to convince you otherwise has clearly never sat on the other side of the table as a workout officer.  When I was a workout officer, people who were civil to me were more likely to get the benefit of the doubt than people who gave me grief for no reason. 

2) The Threat of Bankruptcy Gives You Lots of Leverage - I've written about this before, but it bears repeating:  bankers do not tremble in fear simply because you threaten to file for bankruptcy.  First, bankers know that not everyone qualifies for bankruptcy.  Second, banks are required to make a decision about a settlement offer based on the borrowers ability to pay, not based on whether they'll file for bankruptcy. Third, if you filing for bankruptcy takes a file off your workout officer's plate, it's usually a welcome event.

3) The Sale of Business Assets Can Fund Your Settlement - In most cases (most loans except 504 loans) the lender has a lien on the business assets. Therefore, when your business closes, liquidation of the business assets is performed in order for the bank to recover as much cash as possible.  Since the bank had a lien on the assets, theses funds are NOT considered to be part of the OIC.  The OIC, you see, includes the amounts of cash that you are offering above and beyond the cash obtained via business asset liquidation.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Loan Workout: Should Retirement Savings Be Listed On Your PFS?

 

I recently had a debate with a client about the composition of his personal financial statement.  It went something like this:

 1)  The first point we debated was whether it's appropriate to list his retirement savings on his personal financial statement.  His theory was that since the form didn't specifically ask about his 401k, then he was under no obligation to list it.  He also argued that since funds that are held in designated retirement accounts are generally shielded from creditors, there was no reason to list it.

My Response:  The SBA clearly wants to know about any and all assets, regardless of whether they can be levied by creditors or not.  It was clear to me that in this situation, it would be disastrous to omit his 401k from the PFS since his paystub (which was required as part of the OIC) showed that he was making monthly contributions.  Once a lender discovers that you've omitted your 401k from your PFS, they will question whether you are negotiating in good faith.  Since the SBA does ask the bank if you've been cooperative, your attempt to omit a major asset could hurt your chances for a settlement approval.

The second point he tried to argue was that since he would be borrowing against his 401k to fund the settlement, that it was technically a liability, not an asset.

My Response: While I can appreciate your desire to spin the situation, that is factually not correct.  Since you'd be borrowing against the 401k, it would simply be borrowing against an asset.  Since the SBA requires you to state the source of the OIC funds, to omit the 401k would mean you are not being accurate when stating the source of the settlement funds.

Overall, I understand my clients temptation to leave his most valuable asset off the PFS, so as to improve his chances that his OIC will be approved.  That said, intentionally misrepresenting your situation is never something I'd advocate.  Bankers are smart, and they have tools at their disposal that will allow them to determine if you've left assets off your PFS.  So the lesson, as always, is that when submitting your OIC you should be honest and tell the truth!

 

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How SBA Loan Workout Officers Think

 

When I speak with SBA borrowers who have defaulted on their loans, they often try to figure out how their banker will view their situation in order to devise a settlement strategy.  In some cases they are right, and in some cases they are quite wrong.  Here are some examples:

 

Client: Threatening bankruptcy will convince them to take my offer.

Your Banker Thinks:  The threat of bankruptcy is not a great point of leverage for you.  If you file for chapter 7 BK, you are making my life easier because I now have one less file to deal with.  Some bankers even have the audacity to tell borrowers to go file for BK (which they should never do due to the potential liability of having that be construed as legal advice).

 

Client:  I have a partner, so all I want is the banker to let me pay for my half of the loan.

Your Banker Thinks:  Unless you have a LIMITED personal guarantee (Note: 99% of personal guarantees are UNLIMITED), all guarantors are responsible for 100% of the debt.  This means that if your partner has $0, and you have $100,000, the bank and the SBA will expect you to kick in more than your partner regardless of ownership percentages.

 

Client: I can't afford my loan payment because I have too many personal expenses.

Your Banker Thinks: Don't ask me to finance your lifestyle.  If you have boat payment, a really nice house, and eat out 3 times a week, you need to scale back your spending.  Asking the bank for a loan modification should not be your first option when times are tight.  I want to see that you've pursued other avenues to manage your cash flow more efficiently - both within your business and in your personal life.

 

Client: I'm going to sell my business to someone, settle my personal guarantee, then buy the business back later.

Your Banker:  Go for it.  Just remember, if I catch you intentionally misleading me, I'm going to refer the matter to the SBA Inspector General, who is responsible for investigating fraud.  I expect full disclosure in our dealings.  If there is a question about whether your plan is "above board" just ask me.

 

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SBA OIC (Offer In Compromise) and Community Banks

If I were to ever borrow money from a bank under one of the SBA programs (which, by the way, is unlikely after all the carnage I've seen), I would never borrow from a community bank or a credit union.

In many cases, obtaining a loan through your local community bank or credit union may be easier than going through one of the major national banks.  Decisions tend to be made locally (as opposed to being approved in an underwriting center hundreds or thousands of mile from you), and because of that, these lenders tend to be able to make faster decisions, and make exceptions that the larger lenders won't make because their underwriters are not empowered to do so. 

So if they are easier to get a loan from, why am I saying that I'd never take an SBA loan from them?  Here's why: When the you-know-what hits the fan and you can't afford your loan payment, community banks and credit unions tend to be quite rigid and unwilling to discuss an SBA Offer In Compromise. While this is by no means an absolute, it has been my experience that larger banks are more willing to consider settlements. 

After recently having a very reasonable offer turned down by a community bank, I began thinking about similar experiences I've had in the past with other community banks around the country.  It became clear that when you are attempting to work out and SBA Offer In Compromise, you almost always want to be dealing with a larger institution.

So, why are community banks so unwilling to compromise?  Here's what I think:

- The bank doesn't do a lot of SBA lending, and is unaware that the Offer In Compromise process even exists.  Since they've never been through the process before, it's much easier to say no to an offer than to take the time to muddle through the process.

- The bank is afraid to lose their SBA guarantee.  I've have a good number of smaller lenders sue borrowers, and claim that the SBA requires them to do it.  This is NOT TRUE.  While the SBA does require the banks to take steps to achieve the best possible recovery, there is nothing in the SBA SOPs (Standard Operating Procedures) that requires litigation in order for the SBA to reimburse a bank on a defaulted loan.

- Community banks tends to have lower default rates on their loans, and therefore take defaulted loans more personally, and give them much more attention.  Think about it this way:  If you had a portfolio that consisted of 1000 loans, and 10 of them defaulted, you would give those 10 loans lots of scrutiny.  You'd also tend to be more aggressive about collecting on those loans because there are only 10 in the entire bank.  Contrast that with a huge bank with millions of loans.  Even if the same percentage of loans are delinquent, that translates to thousands of loans.  That's too many for the bank to "take it personally" that therefore they are more likely to develop the philosophy that not every loan warrants long and costly litigation.  It also allows them to gain experience with settlements so that they are not shocked when a borrower offers 25 cents on the dollar to settle.

- Community banks sometimes do not even have workout officers.  If there is nobody at the bank that is dedicated to working out defaulted loans, you may get stuck with a loan officer who has no experience (or interest) in figuring out how the settlement process works.

- When a bank doesn't have much workout experience, they tend to refer defaulted loans to their attorney rather than trying to find a reasonable workout plan.  The attorneys usually have no experience with SBA settlements either, since their main job is to litigate (as opposed to negotiate).

- Finally, since community banks negotiate less often, then are hesitant to engage in meaningful discussions about why a settlement offer has been deemed to be insufficient.  Since they are afraid to say the wrong thing, they instead say nothing.  Without understanding why they feel an offer is not acceptable in the first place, it's really difficult to revise the offer in a meaningful way and reach a mutually agreeable settlement.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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Common Questions about SBA Loan Personal and Corporate Guarantees

Question:  If I file for personal bankruptcy, can the bank still legally come after my business and shut me down?

Answer: Yes - Assuming the business assets are owned by an entity other than you (such as an S-Corp, C-Corp, LLC etc), the bank can still usually go after the business assets.  This assumes that the bank required the aforementioned corporate entity to act as a borrower or guarantor, which is the case in 99.99% of cases. Having your personal guarantee discharged only relieves you of personal liability.  In other words, they can't go after your personal assets (unless they were pledged prior to the BK) such as your home, bank accounts, or paycheck.

Question: When I took this SBA loan, I was advised to form a corporation, who is listed as the borrower.  Doesn't this shield me from any personal liability?

Answer:  Forming a corporation certainly has some benefits.  If the corporation was the ONLY entity that was required to be named as a borrower/guarantor, you would be off the hook personally if the business became insolvent at some point in the future.  Unfortunately, the bankers know this fact too, so in 99.99999% of cases they require the business owners to pledge their personal guaranty in connection with the SBA debt.  By doing this, you are essentially saying "fine, if the business cannot afford to pay you, I will use my personal resources that I owned outside the business to repay this loan".

Some people tell me that they would have never gone through with the loan had they realized what the personal guarantee meant.  First of all, shame on your banker and attorney for not explaining it to you.  Second of all, I can assure you that had you refused to offer your personal guarantee, the bank would not have agreed to lend you the money in the first place.

Question: When I signed the personal guarantee, I thought I was signing as an officer of the company.  Was I wrong?

Answer: Yes, you were wrong.  If the document that you signed says "Unlimited Personal Guarantee", you are personally liable.

Question: Does my business need to file for bankruptcy in order to qualify for a settlement?

Answer: No, in most cases, just ceasing operations is sufficient.  There may be other strategic reasons for filing a corporate BK, but doing it to qualify for an OIC is not one of them.  Interestingly, the SBA has recently in certain begun considering reductions in loan balances on businesses that are still operating.  It's still not the norm, but it's definitely a change from the past policy which absolutely required a business to be closed.

Question: Will the bank be able to foreclose on my home if I file for personal chapter 7 bankruptcy?

Answer:  It depends.  If there was a lien on your home prior to the bankruptcy, then the lien will not be extinguished.  If there was not a lien prior to the bankruptcy, the having your personal guarantee discharged will protect your home due to the fact that the bank would not be able to liquidate your personal assets in order to repay the SBA loan.

Question:  I met with a bankruptcy attorney, who recommended that I file for bankruptcy.  Why should I try to try to settle the debt instead?

Answer:  I tell all prospective clients the same thing:  gather all the facts, then make an informed decision.  Whichever approach you take will have it's own unique pros and cons.  The key is to fully understand the keys pros and cons of each approach so you don't regret the decision later.  There is no one right approach...your individual situation will often dictate which approach makes more sense. 

Question: The person at the bank told me that since I owe them so much, I should file for bankruptcy because the SBA will never release my personal guarantee.  Is she right?

Answer:  Whenever I hear this, it shocks me.  Your banker (who works for the bank, not you) should not being offering legal advice of any kind.  When I was a Vice President is the Workout department, I'd always tell borrowers that if they had legal or bankruptcy questions, they should speak with their attorney.  Only an attorney should be recommending whether or not you file for bankruptcy in order to avoid an SBA loan personal guarantee.  It's one thing to discuss the pros and cons of bankruptcy, it's quite another to say "the only way to get out of this is to file for bk". 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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Top 5 SBA Default Myths

 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!

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Default and Fraudulent Asset Transfers

There is a lot of confusion out there about what constitutes a legitimate assets transfer, and what banks and the SBA consider to be fraudulent assets transfers.

In general, a legit transfer involved the sale of your business or business assets to an unaffiliated third-party buyer.  If the business assets are pledged as collateral for your loan, you MUST get your lenders permission to sell the assets.  The idea is that both parties involved in the transaction are negotiating in their own best interest. 

Here is an example of what can be considered a legit transaction:

You own a restaurant that was financed with an SBA loan (which is secured with your business assets), and after years of struggles, you decide to sell it because you can no longer afford your loan payment.  You reach out to a local competitor to see if he has an interest in buying your business.  He comes over to examine the equipment, and says he will buy all the business assets - your coolers, stove, chairs, tables, utensils, walk in coolers and so on.  After some negotiating, you settle on a price of $25,000 for everything.  Your competitor is going to run the business, and you will not being leasing or buying back the business at any point in the future.  You draw up a contract of sale and present the transaction to the bank for approval.  The bank agrees to release their lien on the assets upon receipt of the proceeds from the transaction.

Now, let's contrast the above example of what I'd consider to be fraudulent transactions:

Example #1 of a Fraudulent Transaction (I call this intentional fraud):

You own a restaurant, and after years of struggles, you come to the conclusion that you simply can't afford to run the business with the current amount of debt that you owe.  You've heard about the SBA offer in compromise, and that for your type of loan, the bank and the SBA require the borrower to cease operations before they will consider a reduction in principal.  Once the business ceases operations, you learn that the bank and the SBA will consider settlement offers in exchange for the release of your personal guarantee.  Thinking you found a loophole, you decided to form a new corporation who you will sell your business to.  Since it's obvious that the bank won't let you sell your business to a corporation owned by you, the new corporation is owned by a friend or a business associate.  You draw up a contract of sale, and present it to the bank, conveniently forgetting to omit the fact that the "buyer" is a friend / business associate.  This kind of approach is clearly fraudulent.  The sole purpose of this transaction is to create the appearance of a sale in order to induce the bank into settling your personal guarantee, and once that happens, you intend to buy or "lease" the business back from the "buyer".  If the bank were aware of all the details, it's highly likely that they would not approve the sale.

Example #2 of a Fraudulent Transaction (I call this unintentional fraud):

You own a restaurant that was financed with an SBA loan (which is secured with your business assets), and after years of struggles, you decide to sell it because you can no longer afford your loan payment.  You reach out to a local competitor to see if he has an interest in buying your business.  He comes over to examine the equipment, and says he will buy all the business assets - your coolers, stove, chairs, tables, utensils, walk in coolers and so on.  After some negotiating, you settle on a price of $25,000 for everything.  Your competitor is going to run the business, and you will not being leasing or buying back the business at any point in the future.  You draw up a contract of sale and close the deal without getting bank approval.  You take the proceeds from the sale, and pay down some credit card debt.  While most people who do this don't realize that they are doing anything wrong, the SBA does require lenders to refer these types of occurrences to the SBA Inspector General, who investigates fraud within the SBA.

In summary, the rule of thumb is simple: When in doubt, ASK YOUR BANKER IF YOUR TRANSCATION IS ACCEPTABLE TO THE BANK, INCLUDE ALL DETAILS , AND GET THEIR ANSWER IN WRITING!  If you are not fully disclosing all the details of the transaction, there is probably something wrong.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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To Succeed With an SBA OIC, Don’t Do This  

I’ve been a SBA Workout Consultant for a while now, and if there is one thing that drives me nuts, it’s this:  Clients who make settlement offers, then realize they can’t afford the settlement once the bank and the SBA has approved the offer.    So here is today’s DLA advice of the day:  

ONLY MAKE A SETTLEMENT OFFER IF YOU HAVE THE MEANS TO HONOR THE TERMS OF YOUR OFFER!  

Situations like this drive me nuts for a number of reasons:  

Loss of Credibility – If you try to re-negotiate a settlement once it’s approved, your banker and the SBA will at some point begin to wonder if you fully grasp your own finances, and whether you truly intend to honor the terms of the settlement.  

Red Tape (Times 2!) – After working on a settlement for a number of months, your banker is going to be annoyed when you want to re-negotiate the settlement.  First, they need to get their manager or loan committee to buy into the new settlement, which means going through the time and effort of amending the original proposal.  They also would need to provide an explanation about why the offer has changed.  If enough time has passed, they may ask you for updated paperwork.  

When a client’s potential settlement offer is low relative to other settlements I’ve negotiated for other clients, I always tell them that all we can do is make their best offer.  Regardless of what the bank or SBA wants, or what it says on paper that they can afford, the bottom line is that the client needs to be fairly confident in their ability to follow through on the settlement.  To agree to a settlement in order to get that temporary sign of relief can be tempting, but taking that route will only come back to bite you.  Most settlement agreements, you see, contain a provision that is known as a “claw back” provision.  In a nutshell, it says that if you default on the terms of the settlement, the bank has the right to take action against you for the FULL AMOUNT OF PRINCIPAL AND INTEREST.  

So what’s a person to do when they can afford $100 per month, and the bank wants $200?  It’s time to get creative.  Given that tens or hundreds of thousands of debt are at stake, nothing should be off limits.  Even with a 10% penalty, taking funds from your 401-k should be considered.  Even if you take out $50K and pay a $5K penalty, having $100K or more forgiven might make it worth enduring the associated taxes and penalties.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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Why I Can Handle An SBA Workout Better Than Your Attorney

I got a call last week from a potential client.  We spent about 30 minutes on the phone, and at the end of the conversation he asked if it would be ok if his attorney contacted me.  I’ve never had a problem with such a request.  In fact, I welcome inquiries like this because it allows me to separate myself from others who preach unscrupulous tactics, or have questionable records. 

The attorney called me, and I could tell from the start that he was skeptical about what I could do for his client.  Finally he asked the “million dollar” question: “What can you do for my client that I can’t do myself?”

“Well” I said, “do you have any experience with the modification or settlement of SBA debt?”

His response: “No.”

“Do you routinely work with tax returns and personal financial statements?”

Once again, “No”.

So really, it seemed to me that the real question here was this: what made this attorney think he was qualified to represent his client in a negotiation?  Attorneys specialize in many areas, so it’s ludicrous to assume that just because someone passed their state bar exam, that makes them an expert in every aspect of the law.  To go a step further, settlement negotiations usually have NOTHING to do with the law (although the resulting paperwork does).  Settlements have to do with coming to reasonable terms so that the bank never has to take legal action.

Of course, not every attorney was as arrogant as the one I described above.  In fact, I often get calls from attorneys who looked me up because their client needs help with an SBA settlement, and the attorney knew that he was not well-versed enough to add value to the process.  In my opinion, the smartest people are the ones who know when to say “I don’t know”.  I get questions all the time about tax and bankruptcy issues that I honestly don’t know the answer to, and that’s exactly what I say.  In a similar light, a smart attorney who realizes debt settlement is not his area of expertise should not “winging it”.  Instead, they should tell their client that they need an expert in the area of debt settlement.  Otherwise, your attorney will simply be learning the process as he goes….which doesn’t exactly sound like a recipe for success. 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Default and Disaster Loans

Every time my phone rings, I take a quick glance at my caller ID to see what state the call is coming from.  I am almost always excited to find out about the callers situation, and how I might be able to help.  But there is one exception: when the call comes from Louisiana.  Do I dislike the state of Louisiana?  No, of course not.  But I do tend to sigh when I get a call from the Big Easy, and the reason is simple:  many SBA disaster loans were issued after Hurricane Katrina to Louisiana residents.

In a nutshell, SBA disaster loans are really, really, really, really, really difficult to settle.  And this is why I don’t like getting calls from Louisiana.  I get 2 to 3 calls per week from someone with a disaster loan who is struggling to pay them, and in most cases I turn those people away.  Believe me, I’d love to help, but disaster loans tend to not to be conducive to settlements for a few reasons:

1)      Disaster Loans Are Almost Always Secured With Homes.  In cases where your home has equity in it that is sufficient to cover your debt, there is no chance that the SBA will settle the debt.  The logic is simple: if they can foreclose on you and get all their money back, there is no reason to settle.

2)      Disaster Loan Terms are Generous To Begin With. Most SBA disaster loans are offer very low interest rates over a long period of time (usually 30 years), so when things go wrong, there is not much that can be done to help.  If your payment is $150 per month, and you are struggling to make that payment, it’s likely that payment at any level would be onerous.

3)      Disaster Loans Are Typically Issued To Individuals. As a result of going to people who had scarce resources to begin with, asking a person to raise a material sum of cash to settle a disaster loan is always a tall order.  If you owe $30,000 and can’t afford a $300 per month payment, it’s likely that you don’t have access to enough cash to make a lump sum settlement offer.  In other words, since most disaster loan borrowers have limited financial resources, the chances of raising enough of  lump sum to settle are limited as well.

4)      The “Powers That Be” Are Arbitrary. More than any other area of the SBA, I’ve found that the SBA Disaster Loan folks rely less on the facts and more on arbitrary thresholds.  Unlike the SBA business loan settlements, which heavily consider a person’s financial situation, the Disaster Loan people basically say “we don’t care that you can only afford $1,000, we want you to pay $10,000”.  For this reason alone, many disaster loans never have a chance to settle.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Loan Default:  I Didn’t Pledge My Home, So How Can There Be A Lien?

 

Back when you first took your SBA loan, life was as exciting as could be, and the possibilities seemed endless.  In short, everything was looking up.  Maybe your loan was funding the expansion of your already successful business, or perhaps your loan was buying you an existing successful business.  Either way, you felt like you were about to embark down the path to entrepreneurial success that you had always dreams of.  Yes sir, in a few short years (or perhaps a tad longer) you would eventually be sitting on a beach somewhere, sipping a drink with a little umbrella in it.

 

Fast forward a couple of years. 

 

After years of banks lending money to people who don’t have the ability to pay it back, the you-know-what hits the fan in September 2008.  The residential mortgage market melts down and banks start collapsing left and right, the stock market plummets, and the economy quickly follows suit.  POOF! Your business, which was previously humming along nicely, is all of a sudden showing signs of a slowdown.  You batten down the hatches. You begin to slash expenses wherever and however you can.  You even have to lay people off, which hurts, but is unavoidable.  And finally, after months of struggle, you come to a frightening realization:  you won’t have the money to make next month’s SBA loan payment.

 

Upon coming to the previously unthinkable conclusion that you lack the funds needed to make this month’s loan payment, you begin to think about what might happen.  One of the first questions that pops into your head is: 

 

Will the bank take my home if I default on my SBA loan?

 

The answer to that question varies depending on your situation.  Let’s try to break it down:

 

1)      You pledged your home as collateral for the loan.  When a person pledges their home as collateral, they grant their lender a lien on their home.  What that means is that if the goin’ gets tough, the bank has the right to foreclose on the home if the situation warrants it.  Of course, whether or not the bank forecloses depends on a number of factors such as how much equity is in the home, or whether you successfully reach an Offer-In-Compromise.

 

2)      You did NOT pledge your home as collateral.  I had a client get very upset when I explained that even though he did not pledge his home at loan origination, there was still a risk of the lender placing what is known as a “judgment lien”.   “I refused to pledge my home in order to prevent this from happening!” he said to me. 

 

Here’s why this client (and most SBA borrowers) still risk having a judgment lien on their home even though the house was not specifically pledged:  In 99.99% of SBA loans, all principal owners are required to personally guarantee the loan, meaning that if things went bad and the business could not pay, the bank would look to the personal guarantors to repay the loan.  And as anyone who has even been sued knows, if you are going to voluntarily offer up your personal assets, the bank can go to the courts and ask for permission to take your personal assets by force.  Once the court approves and grants a judgment, the bank has the right to go after your assets.  Most banks are interested in two things: cash and real estate.  Since a judgment has been granted against you in favor of the bank, they have the right to levy bank accounts, and place liens on your real estate.  In many states, a judgment lien cannot be foreclosed upon.  That’s the good news.  The bad news is that they do have the ability to block the sale or refinance of your home in the future.  That means if you ever plan to move, the judgment lien will need to be dealt with.

 

And that, my friends, is how a person who never pledged their home can still have a lien placed on it by their lender.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Loan Settlements: What About My Landlord and Seller Note?

 

In addition to SBA guaranteed debt, many failing businesses must deal with two other obligations that aren’t discussed too much: landlords and former owners who agreed to finance part of the acquisition cost. 

 

In my experience, the more creditors that a borrower has, the more complicated their situation gets.  I always liken trying to settle with multiple banks to herding cats.  Their decision making is not always predictable, and the speed at which they make decisions is pretty much impossible to guess.  With that said, most of my clients have at least two creditors that need to be dealt with.  The two most common creditors are landlords and former business owners.  Let’s address the most common questions I get about both of them:

 

Can my landlord sue me?  If you were named as the lessee on the lease, or as a personal guarantor, it’s likely that you are personally liable for the lease payments.  In this rough economy, some landlords don’t require personal guarantees in order to entice businesses to rent from them.  Obviously, it’s very important to know whether or not you are personally liable.

 

Will landlords settle? Most will consider a settlement, especially if you lack the resources to pay the lease and the landlord is aware of this fact.

 

How can I get out of my lease if my business is going to close?  The most common method I see is to find someone to buy or take over your business.  Even if you don’t get much for the business, convincing the landlord to allow you out of the lease if you can find a replacement can save you hundreds of thousands of dollars that a lease might obligate you to pay.

 

What does it mean for me if the bank required the seller note to be subordinate to the bank debt?  It basically means that the seller has to wait in line to take action against you if you default.  In most subordination documentation, it prohibits the seller from taking action against the collateral without the banks approval, and that’s because the bank is first in line in a liquidation situation.  The subordination may keep the seller at bay for a bit, but if your business fails, it’s only a matter of time before the seller comes knocking.

 

The seller refuses to settle.  What the heck?  Even though you as the business owner think the seller got enough money at closing to be satisfied, that’s not how the seller thinks about it.  Unlike banks, for most sellers, this is the one and only time in their lifetime that they will be a creditor.  So what happens when you default?  They take it very, very personally.  As a result, they think of it as “their money” and quite often they will be resistant to a settlement.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Loan Default Consequences: Lessons Learned

 

A few weeks back, a client engaged my services to help him settle a debt that had been passed to the US Treasury for collection.  As the Treasury often does, the file was farmed out to a collection company.  The collection company was currently garnishing my client’s wages (15% of his pay check) which amounted to about $1,000 per month.

 

As I always do, my first call after being hired was to the collection company.  The person who handles wage garnishment was very friendly, but she made it clear that she has seen the Treasury turn down pretty much every settlement offer.  Apparently their attitude is that once they start garnishing, they are willing to bet that the borrower will stay at their current job long enough to pay the debt in full.  My client says he won’t be with his current employer long enough for the Treasury to get all their money back, but that concept did not appear to phase the Treasury.  Ultimately, the Treasury turned down an offer that was significantly higher than most of my other offers that are approved.

 

So what lessons can be learned here?

 

-          Ignoring your SBA loan obligation will not make it go away.  In fact, it’s just the opposite.  If you wait for it to get into the hands of a collection company, your chances of a successful settlement drop dramatically.

-          Wages garnishment is a real possibility if you owe the SBA money and have chosen to ignore the banks and SBA’s attempts to work out a settlement.

-          Being proactive about debt settlement can be the difference between a successful settlement and years of headaches.

-          How you choose to rationalize the situation is likely to be vastly different than how the Treasury will rationalize it.  In most cases, threats of quitting your job (to avoid garnishment) and filing for Chapter 7 personal bankruptcy will fall on deaf ears.  In most cases their attitude will be “ok, go for it”.

 

I can understand why a borrower might read my articles, which always advocate being proactive in the settlement process) and say “of course you are going to say that, you make money when people settle!”  True, that is how I make a living.  But at the same time, it doesn’t mean I’m wrong.  The example described above is a perfect example of why it makes more sense to bite the bullet today in order to save yourself an ever larger headache down the road.  If the fact that it’s hard to settle doesn’t convince you, keep this in mind:  when the file gets passed to a collection company, an automatic penalty of 28% of the loan balance is tacked on to the loan balance.  In other words, you can save 28% on your settlement just by dealing with the situation sooner than later.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Loan Default – More Common Questions

 

Why won’t my banker return my calls?

 

There are a few possible reasons why your phone isn’t ringing:

 

1)      Your bank is understaffed.  If you are just 1 of 200 loans that your workout officer is responsible for, it’s simply a numbers game.  When there is literally not enough time in the day to handle all the phone calls, emails, projects and meetings, prompt attention is out the window.

2)      Your banker is incompetent.  Let’s face it: No matter what profession you are talking about, there are a certain number of people who will be terrible at their job.

3)      You did something to make them mad.  Did you promise to make a payment, and then flaked out and didn’t send it?  Did you make a major change to the business without telling them?  Were you rude or abusive when you last spoke with them?

4)      Your file has been referred directly to the SBA.  I often hear from people who were waiting for the bank to call them back, and all of a sudden 6 months later, they get a letter directly from the SBA.

 

If the loan is 75% guaranteed by the SBA, don’t I only owe them 25% of the loan balance?

 

Sorry, the SBA guaranty is for the bank only.  The idea behind the SBA guaranty is to compel lenders to lend to borrowers who they would otherwise have to decline.  Whether or not the SBA reimburses the bank has no bearing on how much you owe.  All that really changes is that the SBA will get 75 cents of every dollar that is collected on that loan going forward.

 

I have a business partner, and we both personally guaranteed the debt.  Am I only liable for 50% of the debt?

 

In most cases, all personal guarantors sign unlimited personal guarantees.  This means that you are both responsible for 100% of the debt.  Therefore, they will pursue both of you for the full amount. 

 

I personally guaranteed the loan as a favor to a friend/family member, but I had nothing to do with the business.  Shouldn’t that count for something when they are considering my Offer In Compromise?

No.  The reason they asked for your personal guarantee in the first place was because the business and business owners did not qualify for the loan by themselves.  The whole idea was to have a guarantor who has resources available to repay the debt in a worst case scenario.  A personal guarantee is a personal guarantee regardless of why you agreed to it at loan origination.

 

When I first took this loan, I pledged my home as collateral.  My lender said the bank would release the lien after 12 months of on-time payments, but now they won’t.  What gives?

 

It’s important to realize who made that promise to you: a sales person.  Their job is to bring in loans.  Unfortunately, some sales people will tell you things with a wink and a nod that they have no authority to promise.  Unless you have it in writing from the bank that your home will be release at a certain point in time, you will be out of luck.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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I Need An Attorney To Handle SBA Default, Right?

I got a call from a guy who was looking for an attorney.  When I told him that I am not an attorney, but rather an SBA Workout Consultant, his response was “Oh, well thanks, but we really need an attorney.”  I went on to question him about his situation, and he told me that he was 3 months late on him SBA loan and the bank had not granted him a modification.

“So, why do you feel that you need an attorney to help with a modification?” I asked.

“The bank has threatened foreclosure!” he responded.

 Dude.  Seriously?

For the record, pretty much every bank threatens legal action when you don’t make payments for 3+ months.  Until it actually happens, it’s all talk and an attorney can’t do anything more than I can when it comes to rectifying a default.  I knew from this guy’s tone that he had his mind made up, and no amount of explanation was going to sway him.  He truly seemed to think that the bank would be intimidated if an attorney called them.  As a former banker, I can tell you that his assumption is not correct.  Bankers deal with attorneys all the time.

So the question remains: When do you need an attorney?

You need an attorney when:

1)      You need to be represented in court.

2)      You want to file for bankruptcy.

3)      You need to answer a legal summons and complaint.

4)      You are asked to sign a legal document.

You’ll notice that the above list does not include loan modifications or debt settlement.  Why?  Because negotiating SBA debt settlements and loan modifications doesn’t require a law degree.  It requires the following attributes:

1)      Experience analyzing financial statements and cash flow analysis.

2)      A strong understanding of the rules of SBA settlements and loan modification protocol.

3)      Experience negotiating SBA settlements and loan modifications.

 While there may be attorneys who do possess the above attributes, my point here is that not all do, so to assume that you need an attorney in all workout situations is a false assumption.

I know what you are thinking: The guy writing this article clearly has an interest in convincing me not to use an attorney because he wants me to hire him!  True, but it doesn’t mean my points are not valid.  I see it as a similar situation to when borrowers are trying to consider whether to hire me, or to hire a bankruptcy attorney.  The bankruptcy attorney usually recommends filing for bankruptcy regardless of the situation.  It doesn’t mean it’s not a legitimate option, it’s just one perspective. 

I always tell prospective clients to simply evaluate all their options, then make an informed decision.  And that’s really the point of this article.  In some cases it makes a lot of sense to engage an attorney, but in some cases it doesn’t.  But to assume that an attorney is always a better option than an SBA workout consulting just isn’t true.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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What I’ve Learned as an SBA Workout Consultant

Bad Things Happen To Good People – Overwhelmingly, the people that call me truly want to repay their debt.  They aren’t deadbeats.  They aren’t looking for a free ride.  They are simply trying to resolve their debts without resorting to bankruptcy.  In some cases, my clients have even moved out of the country, and even in that case, they want to do the right thing and pay what they can to the bank/SBA.  Most borrowers are good people that are largely victims of a bad economy.

Time is of the Essence – I’ve weaved this theme throughout various articles, but it does bear repeating.  The longer you wait, the harder it will be to settle.  If your file gets referred to an attorney to begin litigation, it can make it infinitely harder to settle.  Just ask my client who has been waiting a year for a settlement, as the bank pushes ahead with personal judgments against them. 

The Rules Are Always Changing – As times passes, the stance that lenders and the SBA take with respect to certain issues evolve to fit the current the current economic times.  Even though the SOPs (Standard Operating Procedures) tend to stay the same, the interpretation and focus tends to vary over time, and even within the different SBA offices.  Working with an expert who knows how the SBA is currently viewing different factors can be the difference between a successful settlement and a long, drawn out battle that ends in the levying of tax refunds and wage garnishment.

Freedom Isn’t Free – The idea behind settling (from the bank/SBA perspective) is to settle for an amount that is reflective of a guarantor’s ability to pay. This means that if you are going to successfully negotiate an OIC, you need to be willing to tap all available resources.  If you are going to have 50% or more or your debt forgiven, the expectation is that you will give as much as you can afford…not simply as much as you feel like paying.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Default: 3 More Reasons Why You Should Settle Today

1) Pay Less Today, or A Lot More Tomorrow

I know this advice is going to fall on deaf ears, because I see the same scenario every single day.  I get a call from someone who thought the bank/SBA had given up on trying to collect their defaulted SBA loan, only to get a call from one of the collection companies that the US Treasury hires to “beat the bushes” in an effort to recover some cash.

 Here’s the problem with the collection companies:  they are really really really hard to settle with.  They want a lot of cash, and they want it now.

So, how can I avoid being backed into a corner by a collection company, you ask?  It’s simple:  BE PROACTIVE.  Don’t wait for the bank to come to you.  Instead, you should go to them.  This means that the day you close your business, you need to be in touch with the bank and get the process moving.  If you don’t get a return phone call in a few days, try again.  If you are intimidated by the bank, then hire a guy like me.

Overall, the reality is this:  In the vast majority of cases, a more reasonable settlement can be worked out through the bank/SBA than through the collection companies.

2) Life Isn’t Fair, and Neither is The SBA 

Don’t get me wrong, I actually find the SBA to be a very reasonable group of people to deal with.  That said, when their form letter goes out that says you have 60 days to get back to them, I’d strongly advise responding as soon as you can.  On more than one occasion, I have had clients come to be on day 59, only to be disappointed that their loan was turned over to the Treasury before they had a chance to make a settlement offer.  And believe me, complaining to the Treasury that you only got 59 days instead of 60 will get you nowhere.  Once its goes to the Treasury (and then to a collection agency), you MUST deal with those entities.  I’ve even seen the file be turned over to the Treasury a week or two before they were supposed to.

3)  Fees, Fees, and More Fees

When you signed your loan documents, there was a section where you agreed to pay the bank/SBA for the costs they incur in trying to collect the debt from you.  In the case of the Treasury and its collection companies, that often can add an additional 20% to your debt total.  Attempting to dispute these fees will be like trying to explain physics to my golden retriever…no matter what you say or how you say it, you will not have any success.

So please folks, in order to give yourself the best chance at settling, take action today!

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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4 Facts You Need To Know About SBA Loan Workouts

 

1)      I Can Only Help Those Who Help Themselves

 I can't negotiate a debt settlement or a loan modification without first reviewing all the financial disclosure that your lender will require.  In many cases, clients will engage my services at the last possible moment before something really bad happens like a foreclosure or a judgment.  While I understand not taking action until you absolutely need to, once the reality that something adverse is imminent, it's time to fall in line.

 I've had a few clients who have engaged my services, only to dilly dally when it came to producing their pertinent information.  Bankers don't have infinite patience, so I a few cases, by the time I got all the info I needed it was too late.  The files were referred to legal counsel, and the opportunity to negotiate with the bank was lost.

 

2)      The Devil Is Always In The Details

 Prospective customers often give me a nutshell synopsis of their situation and follow it up with the million dollar question: "So, how much do you think I can settle for?"  I usually choose not to answer this question for two main reasons:

Who's going to buy the cow if I give away the milk for free?  In other words, how much I think you should offer in a settlement is the type of information that clients pay me to advise them about.  Asking me how much to offer is asking me to work for free.

Even though a person's financial situation can be summarized in a few minutes, I've found that there are usually a few very relevant details are missed.  For this reason, I always review a client's personal financial statement and proof of income before I begin to formulate a settlement offer.  To do it any other way could be setting a client up for disappointment, which is never good for any party involved.

 

3)      Bankruptcy Is Not A Cure-All

I've covered the bankruptcy topic in other articles, but these points bear repeating:

Not everyone can file for personal bankruptcy - - you need to qualify.  This means that not everyone will be able to avoid being personally liable for your SBA debt.

If you pledged your home as part of your SBA loan, a discharge from personal bankruptcy will not extinguish the lien.  This means even if you are discharge from any further personal liability, the bank still has the right to foreclose on your home.

If you file for bankruptcy, many lenders will refuse to lend to you again.  It's also worth noting that since not all SBA lenders report to the credit bureaus, settling instead of filing for bankruptcy can be the difference between preserving your credit and having it trashed for years to come.

 

4)      Attorneys Are Not Magicians

I am always surprised when a client hires an attorney because they think the lawyer will be able to convince the bank or the court to let them out of the obligation.  In most cases, unless the loan documents are defective, the lawyer will not be able to prevent a judgment against you.  It's not like TV, where the hot shot lawyer can tell a moving tale of woe in order to convince the judge to release you from any personal liability.  In real life, the process is pretty simple.  The bank shows the note and personal guaranty that you signed, they show that you are in default (as outlined in the note and personal guaranty), and the judge grants the judgment. 

 The bottom line:  In many cases, you need a workout expert to help you get your debt resolved, and not all attorneys are workout experts. 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Loan Bankruptcy: Does Your Lender Care If You File?

 

Quite often, when I am discussing a settlement proposal with a client, my client will say something to the effect of “tell them that if they don’t take my offer, I will file for bankruptcy and they will get nothing.”

 

My reaction to that idea is always the same: “Hold on there, Cowboy”.

 

While bankruptcy is certainly a tool that can be used to legally discharge debt, it doesn’t mean that all lenders will tremble in fear when they hear the word.  In many cases, it is quite the opposite.  In a nutshell, many workout officers do not care if you file for personal chapter 7 bankruptcy.

 

Why don’t they care?  There are two main reasons:

 

1)      If you file for and are discharged from personal chapter 7 bankruptcy, the bank no longer has the legal right to attempt to collect from you.  In practical terms, it means that the workout officer can turn their attention to one of their other 100 files.  And as a former workout officer, I can tell you that having one less delinquent loan to chase was just fine with me.

 

2)      Most lenders do their own analysis of the situation, and if they think you can pay more than you are offering, they will reject the offer regardless of a bankruptcy threat.  I can tell you that if I gave a borrower a “sweetheart” settlement when I was a workout officer, and was questioned about it later, the excuse that the borrower threatened to file for BK would not going over well.

 

So, do banks want to force you into bankruptcy instead of settling? No, not usually.  With that said, workout officers are human beings with stressful jobs in a corporate environment.  For most, that means they would be delighted to get rid of your file with as little time and effort as possible.  And guess what, bankruptcy does just that!

 

The final point to ponder is that while most workout officer aren’t attorneys, many have a feel for who might actually qualify for personal chapter 7 bankruptcy.  For those who are not aware, not everyone can file for chapter 7, you actually need to qualify based on your assets and income situation.  If you look pretty strong on paper, many lenders will know that your threat to file for BK is a bluff, and they will not even blink.

 

At the end of the day, will the threat of filing for bankruptcy hurt you?  Probably not.  Just don’t expect your lender to say “Please, don’t file for BK.  Anything but that!  We’ll make a deal, we promise!”

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Loan Workout:  The One Obstacle You Didn’t Expect

Maybe I’m biased, but back when I oversaw a team of workout specialists, I thought I was pretty good at my job.  It could be overwhelming at times because of all the files I had to handle.  Handling 100+ files can be a tall order for even the most efficient worker, especially when handling those files is only a part of what the workout specialist is responsible for.  In my case, I was constantly working on some mundane (and in many cases, pointless) reports that management wanted to see.  On average, I’d spend one full week out of every month doing nothing but filling out forms and creating reports.  Of course, just because I was working on reports didn’t mean that my 100+ files were going away.

So, what’s the obstacle to SBA Loan Workout that you didn’t expect?  It’s simply getting your workout officer to take action on your loan.  That can mean getting a response to an email or phone call, pushing them to submit your offer to the SBA, or getting the paperwork you were promised after you make an agreed upon settlement payment.

There are many obstacles that I always knew existed: filling out paperwork, making a fair offer that is reflective of the borrower’s personal finances, and liquidating business assets.  But getting someone on the phone was not one that I ever thought about, and honestly, it’s probably the biggest hurdle I encounter these days.

 When I was a workout officer, responding to emails and phone calls in a timely fashion was second nature.  I had started my career as a commercial lender, so being responsive was part of the job.  Now that I’m a consultant, I’ve learned that not all workout people make the borrower a priority.  Sadly, I would say that being completely unresponsive is now the rule rather than the exception.

Why are so many workout officers so slow to return calls or respond to settlement offers?

 1)      Too Much Work, and Not Enough People – At some point, even the best worker reaches the point where they physically cannot move any faster.  With the economy being in shambles, many lenders are hesitant to spend money on additional workout staff, and as a result many workout departments are working at 125% capacity.  The result is obvious: there is just not enough time in the day to do everything that needs to be done.  So if your case is not a high priority, it’s very likely you will be put on the back burner, or worse, completely forgotten.

 2)      Incompetence – This is true of any profession, not just workout.  Some people are just bad at what they do.  They ask for paperwork that they don’t need (or worse, lose the paperwork you already gave them), ask questions that have no relevance, and basically find ways to prolong the process and waste everyone’s time.  I had a co-worker who spent hours poring over minutia that didn’t matter, so there was no way to get to the stuff that really mattered.

3)      You Are Mean, Rude, or Annoying – I don’t know about you, but I tend to avoid people who make my life difficult.  Workout people are human, so if you stress them out, they’ll just find a reason to work on another equally important matter.

How To Overcome The Obstacle Of A Non-Responsive Workout Officer

1) Be Persistent – Making sure they don’t forget about you can be the difference between getting something done or being at the bottom of a pile somewhere.  And don’t forget, sending an email or calling once a week is persistent.  Calling every hour is obnoxious.

2) Be Responsive – It can be annoying to have to rush to get paperwork together in the blink of an eye, especially when they took a month to get back to you, but the bank is the one holding all the cards here, so swallow your pride and do what you can to make their life as easy as possible.

3) Be Polite – In most cases, being respectful and courteous will get you further than saying things like “you got bailed out, so I want to be bailed out. What can your bank do for me?”

4) Keep Records – For the extreme cases of being ignored, you want to have records of calls and emails.  That way, if you do need to escalate the issue, you can prove that your lender is ignoring you.  Similarly, if you lender says they will get back to you by a certain date, but don’t, and this happens over and over, you will have proof.  In many cases, the workout officer’s manager has no idea that borrowers are being ignored and will make sure your file gets looked out if it comes to their attention.

Overall, the workout process can best be described as grueling.  Murphy’s Law (the idea that “whatever can go wrong, will go wrong”) almost always applies in SBA workouts.  The key is not to take any of it personally, which is admittedly hard to do, which is why so many people seek the help of a good workout consultant.  And for those of you who think being forgotten is a good thing, if you just let the problem sit, it will resurface in the hands of the US Treasury.  I assure you that trying to settle with the Treasury will be twice as hard, and A LOT more expensive.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Loan Bankruptcy – The One Fact You Need To Know Before You File 

A few times a week, I receive calls from business owners who have filed, or are planning to file for personal bankruptcy. 

The reason that most of them file for personal bankruptcy is due to the crushing amount of debt they owe in connection with their failed or failing business.  For most, their SBA loan is the single largest obligation, but many also owe landlords, credit cards, and vendors. 

For those who are not aware, a discharge from chapter 7 personal bankruptcy pretty much wipes the slate clean.  Once a bankruptcy judge grants you a discharge, almost any debt that you are personally responsible for is cancelled, meaning that the lender has no legal recourse against you.  There are some exceptions, such as government guaranteed loans, that cannot be discharged.  Of note, SBA loans absolutely can be discharged in chapter 7. 

Many people believe that chapter 7 bankruptcy is a cure all that can extract you from a life of law suits and collection calls.  But there is one major fact that many people miss: 

DISCHARGE FROM CHAPTER 7 PERSONAL BANKRUPTCY WILL NOT RELEASE A LIEN ON YOUR HOME. 

So what could this this mean to you? 

It means that if you pledged your home as collateral for your SBA loan, filing for, and being discharged from, personal chapter 7 bankruptcy will not extinguish the lien.  It also means that if you have equity in your home, your lender may foreclose on the property.  That’s right, even though you personally are no longer responsible for the debt, your home can be taken via foreclosure sale. 

Even if there is no equity in your home, it doesn’t mean that you are in the clear.  Why?  Even if there is no equity today, that may not always be the case.  There are two basic events that can create equity in your home: 

1) The Value of Your Home Can Increase.  Home prices are currently at their lowest level in years.  Let’s say that your home is worth $200,000 today, and that you owe $200,000 on your mortgage.  In such a case, your SBA lender would not be interested in foreclosing.  However, if the value of that home were to increase to $350,000 (thereby creating equity), you’d run the risk of foreclosure at some point in the future. 

2) As Time Passes, You Will Be Paying Down Your Mortgage.  Even if your home value does not increase in value, the fact that you are making monthly mortgage payments will in fact create equity.  Staying with the example above, let’s say your home is worth $200,000 and you owe $200,000 on your mortgage.  Let’s assume that the economy stays in the toilet for the next 10 years and your house value remains constant.  Even in that case, your mortgage balance will be falling as you make payments, so eventually you will only owe $100,000 on your mortgage.  You know that means….equity!  Once again, such a situation could make your home susceptible to a foreclosure in the future. 

Overall, the point of my article is to explain that while bankruptcy may be the right option for some, it’s definitely not a “get out of jail free” cards in all situations.  To better understand your options, I always recommend that borrowers speak with both a bankruptcy attorney and an SBA workout expert in order to make the most informed decision possible.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Loan Workout –  Why You Need To Settle Today

I recently had a client come to me for help.  His lender had referred the file to the SBA for collection, so his window to negotiate directly with his lender had closed.  Despite submitting the OIC through the lender being his best chance to settle, I thought he still had a decent chance to settle directly with the SBA.

We went ahead and submitted all the required paperwork.  About week later, to our surprise, we received word that the offer had been declined and been referred to the US Treasury.  We had no chance to find out why the loan had been declined, and were given no opportunity to improve the offer.  

So 2 weeks after the initial offer, we submitted a new offer to the US Treasury for slightly more money.  That offer was also declined, and this time, they told me that they would not consider settling for less than full principal balance.  That was the final nail in the settlements coffin.  We are now waiting to hear from the collection companies who the Treasury refers files out to, although we have little confidence that dealing with the collection company will be any more productive.

So what are the lessons to be learned here?

1)      Being proactive in the Offer-In-Compromise process with your lender can mean the difference between a reasonable settlement and dealing with the headache of collection calls and letters for years to come.

2)      Dealing directly with the SBA, the Treasury, or a collection company can be hard because they don’t give you access to decision makers, so it’s sometimes impossible to know why an offer was declined.

3)      Settlement offers that would be acceptable when submitted through your lender are often declined when submitted directly to the SBA, the Treasury, or a collection company.  It’s not fair, but it’s the reality of SBA debt settlement.

Overall, it’s too bad that my client did not reach out to his lender as soon as his business closed.  Instead, he waited to hear from his lender, and unfortunately he never heard from them (unfortunately, many lenders follow this practice because they are overwhelmed with files and lack the man power to thoroughly work through the OIC process with every borrower).  As a result, the opportunity to get the loan settled passed, and we are now mired in a process that could take years to resolve.  As I always tell my clients, if you want to settle, do it sooner than later because once the window of opportunity to deal directly with your lender closes, it’s closed for good.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Workout - Will the SBA let me sell my business?

 

Once you've come to terms with the fact that your business is no longer viable, it's always prudent to formulate an exit strategy.  With so much money at stake, this is certainly no time to "wing it".  One of the initial steps down the path towards an Offer In Compromise is to liquidate the business, which can include  a sale of the assets, or a sale of the business as a "going concern".  In this article, we will explore the types of sales that this workout expert would consider legitimate, and types that I'd consider to be ethically and legally questionable.

 

Here is the key to a legitimate transaction:  Whether it be the sale of equipment, or the sale of the business as a whole, the SBA and your lender are only interested in "ARMS LENGTH" transactions.  An arms length transaction can be defined as one where the buyer and seller are independent and act in their own best interest.

 

So what is an example of an arms length transaction?

 

Let's say your business is struggling so you list it for sale.  You get lucky and find an interested buyer.  You've never met the buyer before, and you are both negotiating in good faith. You are trying to get the most money you can, and he's trying to pay the least.  He will take over the business, and you will have no involvement with the business once the sale is completed.  In short, this is straight forward sale in which both parties have no ulterior motives.  To most banks, this transaction would be considered an arms length transaction.

 

So what would NOT be considered arms length?

 

- Sale of the business/business assets to a friend, family member, or business associate. Since you have a relationship with these parties, it would be questionable whether both parties are acting solely in their own best interest.  If you make a sale with the intention of buying or leasing the business back at a later date (and do so in order to submit an Offer In Compromise), then you are running the risk of being accused of fraud if your scheme is uncovered.

 

- Creating a new company, and selling the business/business assets to that entity while representing that the new company is an unrelated party.  This is clearly fraudulent.

 

- Selling the business/business assets to an entity (C-Corp, S-Corp, LLC, partnership) owned by a friend, family member, business associate, or anyone else for the sole purpose of submitting an OIC, with the intent to buy the business back at a later date.

 

Overall, if you think you've found a loophole by trying any of the situations that I've described as NOT arms length, let this be a warning to you that these are not loopholes.  They are thinly veiled attempts to defraud your lender and the SBA. 

 

My advice, as always, is to play it straight and do the right thing.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Debt Forgiveness: Why Won’t Some Lenders Forgive an SBA Loan?

 

Having been an SBA consultant for a while, I’ve come across many different lenders.  They run the gamut from the smallest of community banks to the largest banks in the universe.  There are hundreds of banks, and with that come a number of different philosophies when it comes to loan settlement.  Despite SBA’s settlement protocol and policies, the first issue I always want to tackle is whether my client’s lender will even consider a settlement.  After all, if a bank won’t settle regardless of the situation, there is little point in engaging my services.  The reasons why a bank chooses not to settle:

 

Too much equity in your home.  If you pledged your home, and there is enough equity in it to repay the loan in full, it’s unlikely that your lender will want to take a short payoff (the SBA would concur with this stance).

 

The business is still open.  Many lenders don’t like the idea of losing money on a loan while a borrower stays in business and continues to benefit financially from the business.  Either you stay open and pay the loan in full, or you close and try to settle. (Again, the SBA concurs with this stance).

 

They Think All Borrowers Cry Wolf.  Many lenders are tough as nails when it comes to dealing with defaulted debt.  While some lenders will assess your financial situation and make concessions based on what they see, others choose to litigate and obtain judgments against the borrower and personal guarantors.  The theory behind the litigation is that debtors tend to stretch the truth about how dire their financial situation is (ie “cry wolf”), and only when they have their bank accounts levied, wages garnished, or home encumbered will they get serious about settling.

 

You Are One Many Customers.  In the current economy, many loan workout departments are completely overwhelmed by the number of delinquent loans they have to deal with.  In such cases, some bankers will just choose to refer to matter to their attorney rather than dealing with the paperwork  and effort involved in an SBA loan settlement.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Default Consequences:  Bad Stuff That Can Happen

 

Like me, many of my clients are “bottom line” thinkers so the second question they typically ask me (the first being “How much can I settle for?”) is:  What can they do to me if we don’t reach a settlement?  So here are some answers, in Q&A format:

 

Can they put me in jail?  Yes, but it’s rare.

 

It’s a very rare occurrence for this to happen, and its only possible in some states (not all),  but it could actually happen.  How?  Well, if a bank obtained a personal judgment against you, they could follow up with an information subpoena.  An information subpoena is basically a legal way of saying “give us the information we are asking for or else.”  The purpose of the bank’s information subpoena is to force you to disclose your income and assets so it can be determined if you have anything that can be used to satisfy the judgment.  In certain states, if you fail to respond to an information subpoena, the bank could actually have you arrested. 

 

Can they take my home?   It depends.

 

If you pledged your home as collateral and there is equity in it, you can be sure that they’ll push for a foreclosure.  If you didn’t pledge your home, that could make it much more difficult for the bank, although not impossible.  If the bank obtains a judgment against you personally, they could attach that judgment to all your personal assets including your home.  In many cases, a judgment lien cannot be foreclosed upon, but if you ever try to refinance or sell you home, a release of that lien will need to be negotiated.

 

Can they garnish my wages?  Yes.

 

Can they take my tax refund?  Yes.

 

Can they garnish my spouse’s wages if they did not guarantee the debt?  No.

 

To garnish the wages of your spouse, who has no legal obligation to the lender, would be like them coming after me to pay your debt.  When it comes to personal assets, that gets a little tricky because each state has their own property laws.

 

Can they repo my car, my lawn mower, or my prize stamp collection?  Possible, but not likely.

 

Lenders typically only attempt to seize items with significant liquidation value.  If you have jewelry or expensive art, they would go after those items, but your 2001 Toyota Camry is probably safe.  By the time they hires a repo guy, paid to store it, and held an auction, it’s unlikely that they’d realize enough cash to justify the effort.

 

Can they shut down my other business that didn’t guarantee the debt?  Yes

 

If your other business is owned by you, it would be considered an asset and/or a source of income.  Such an entity would be fair game.  If you owned the business with a partner who has no affiliation with the debt on the defunct business, that would make it harder to the lender to get to that business.

 

Can they still come after me if my business files for chapter 7 bankruptcy?  Yes.

 

If your business operates as a separate legal entity (C-Corp, S-Corp, LLC etc) and you are a personal guarantor, a bankruptcy filing by the business does not prevent the bank from pursuing you personally.

 

Can the IRS come after me since the SBA is part of the Treasury? Yes.

 

In many cases, borrowers or guarantors of SBA loans are placed in something called the “Treasury Offset Program”, whereby they monitor your tax returns, and if you are entitled to a refund, they garnish those funds and apply them to the loan balance.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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Will SBA Loan Forgiveness Impact My Credit?

For many small business owners, their credit history is a source of pride.  For years, their payment record has been pristine.  They’ve never been late on a payment, and the idea of defaulting with a creditor was not even a possibility.  All that changed when the recession hit in late 2008.  They wanted to pay their creditors, but there literally was not enough money to pay everyone.

Today, when potential clients contact me, one of the first questions they ask is:  “if an SBA settlement is approved, how will it impact my credit?”  Like almost every other question I get, my answer is “It depends.”

When they ask about “credit”, most people are referring to the credit reports that are issued by the three big credit reporting bureaus - Experian, Equifax, and Transunion.   People basically want to know if their credit score will fall as a result of a settlement.  Whether or not that happens depends on one factor:  does your lender report to the credit bureaus?

Surprisingly, not all lenders report to the credit bureaus.  I worked for the lender who was the largest 7a lender for a number of years, and they did not report to the credit bureaus.  Regardless of whether the borrowers paid on time or were 90 days late, it was never reflected on the personal credit of the borrower or personal guarantors.  The lender’s rationale was that since it was a commercial loan, it did not need to be reported.  Of course, some lenders do report to the credit bureaus, in which case the fact that you defaulted and settled your SBA debt is likely to impact your personal credit score. 

If you are unsure if your lender ever reported the loan to credit bureaus, every borrower is entitled to a free copy of their report from each of the three credit bureaus on an annual basis.  Unlike the commercials you see on TV for “free” credit reports, www.annualcreditreport.com truly is free because the credit bureaus are required by law to show you what is on your credit report.

In addition to what can be viewed on a credit report, it’s important to remember that even if a credit event is not reported on a credit report, it doesn’t mean that a future lender won’t ask a question about it if you apply for a business loan for a new venture.  Lenders will often ask for a resume of the business owners, which could inevitably leads to a discussion about your failed venture and whether any lenders lost money as a result.

Overall, my take on the subject is that regardless of whether your lender reports to the credit bureaus or not, most borrowers stop making their payment not by choice, but rather because they can’t afford it.  If a borrower has the luxury of deciding whether or not to pay their bills, they probably aren’t going to qualify for SBA loan forgiveness anyway since the SBA OIC process is designed to help borrowers who lack the resources to repay their debt in full, not because it’s inconvenient to honor the obligation.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Loan Default: Why Is My Banker So Mean To Me?

When dealing with an SBA loan workout, as in life, there is a chance that you might come across one or more individuals who have completely abandoned that whole thing about treating others as you’d like to be treated (I’m sure their mothers would NOT approve!).  On more than one occasion, I’ve been engaged to deal with cranky bankers who seem bent on giving my client a hard time.  Based on my time as a banker, and my time as a consultant, I’ve accumulated a few theories about why some bankers just can’t seem to play nice in the sandbox.  Here are the most common:

1)       The borrower did something to make them mad.

In some cases, the borrower did something they were not supposed to do, either by accident or on purpose.  Did you sell your business assets without telling the bank?  Did you repeatedly break promises to send payments or paperwork?  Did you go on the offensive and put them in a position to have to bare their teeth?  Did you whine about how banks got bailouts and you are being treated like dirt?

No matter what you did, if you did something to make them mad, it’s quite possible that they took it personally (most will, although they’ll never admit to it) and are emotionally invested in your file (in a bad way).  Once they are against you, it only makes the fight that much harder.  They’ll scrutinize your information, probing for a reason to reject your offer.

The lesson here, of course, is try not to make your banker mad.  Debt Settlement 101 calls for you to be polite and cooperative, so as to avoid the dreaded Cranky Banker.

2)      They are new at their job.

At some point in our lives, we have all been “the new guy” (or gal).  I always hated being the new guy because it meant that I’d often be asked questions by borrowers that I didn’t know the answer to but was supposed to.  What is a reasonable settlement offer?  Do I have to pay interest on the settlement?  How long of a period can I make payments over?

I never had an ego that prevented me from saying “I’m not sure.  I’ll check and get back to you.”  Unfortunately, not everyone is like that.  Some bankers do have egos, an rather than admit that they are not sure about their own institutions philosophies and regulations, they’ll try to cover the fact that they are as clueless as you are by stonewalling you.  They won’t respond to emails or voicemails, and when you can get them on the phone, they are evasive and leave you feeling frustrated because you are getting no direction or feedback about the settlement or modification process that you are attempting to navigate.

3)      They are incompetent.

A close cousin to the “new guy” is the incompetent guy.  I find the incompetent guy the hardest to deal with because unlike the new guy, the incompetent guy will never learn and will ruin lives until management has the good sense to fire him.  Incompetent guy is hard to deal with because he is not knowledgeable, unresponsive and uncooperative.  I worked with a guy like this, and got to hear about how poorly he treated people after he was fired and I took over his accounts.  He wasn’t a mean spirited person, he just honestly was overwhelmed by the job, and on certain days he would take it out on his customers who were just trying to get their situation rectified.

4)      They got picked on as a child.

This person is just mean in general, and it’s their mission to spread their misery to as many folks as possible.  They almost get joy out of tormenting you.  They love to threaten to take your home, shut your business down, and sue you despite the fact that you are dealing in good faith.   I used to have to foreclose on people, but there is a tactful way to explain the bank’s position without demeaning or threatening a person.  Some bankers enjoy being in a position of power, and will use their power to make your life unnecessarily uncomfortable.

For the record, I have worked with many more nice bankers than mean bankers, and I’m thankful for that.  Most bankers I deal with are knowledgeable and responsive, and understand that my clients are not bad people, but rather they are just caught in a difficult financial situation.  But I have to say, I always cringe when I realize that I’m dealing with the dreaded Cranky Banker.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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Why Won’t the SBA Help My Business?

 

If there is one common point of frustration among small business owners, it’s this:  every newspaper you read is about how Obama says that banks need to help America’s small businesses, yet when it comes to help small businesses, the SBA (a government run agency) offers minimal assistance to struggling business owners.

 

They rolled out the ARC (America’s Recovery Capital) last year, which was like putting a band-aid on a broken leg.  It was supposed to be a $35,000 loan to small businesses who needed help.  The problem?  The program was tiny, so the money ran out within the first few weeks.  In addition to that, nobody seemed to know who qualified for the funds.  They program called for the funds to go to viable businesses.  Huh?  If a business will close without getting this $35K, would you call that business viable?  Just a poor program all around.

 

I get many calls from business owners who purchased real estate via the SBA 504 program.  They are struggling to make their payments, and the SBA has no long term options to keep the businesses solvent.  In my experience, the SBA is resistant to doing anything beyond short term deferments, which in my opinion do nothing but delay the eventual failure of small businesses for 6 or 12 months.  The only way to effectively offer long term relief for borrowers is to extend the loan maturity, but in my experience, that’s just not something they’ll consider under the 504 program because the original loan term is 20 years, and the maximum SBA term is 25 years. 

 

Overall, I do understand the problem the SBA faces when grappling with how to help small businesses.  They don’t want to, as bankers say, “lend good money after bad money”, meaning they don’t want to lose more money than they already stand to lose by lending additional funds. 

 

With that said, it would seem to me that steps can be taken to alter the existing debt terms on 504 debt in such a way that it gives small businesses a fighting chance.  Would it save every small business?  Certainly not.  Would it save some businesses, effectively saving the SBA from writing off millions and millions of dollars?  I’d have to say that’s true.  And here is the kicker:  the onus of qualifying borrowers for loan modifications doesn’t fall on the SBA.  Instead, it typically falls on the servicing bank, or in the case of the 540 program, the Community Development Corporation (or the CDC).  In other words, all the SBA has to do is change its policies, and BOOM, borrowers will have a fighting chance.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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Can You Discharge an SBA Loan in Bankruptcy?

 

(Note: The author is not an attorney and this article should not be construed as legal advice.)

 

This question seems to come up a lot, so I figured that it’s time to address it with an article.  The best way to answer the question is this way:  In bankruptcy, SBA guaranteed debt is treated like any other debt.  It gets no special treatment because it carries an SBA guarantee.  In many cases, the fact that the loan is SBA guaranteed never enters the equation.  Why?  Because when someone files for BK protection, they are required to create a list of creditors, which is a list of everyone they owe money to.  So when a debtor lists their SBA loan, they don’t list the SBA as a creditor, they list the originating lender.  In order words, if I have an SBA guaranteed loan from the Bank of Jason Tees, then I list The Bank of Jason Tees as the creditors, not the SBA. 

 

So if an SBA loan can be discharged, why would anyone ever bother to settle?

 

-          In some cases, it will be cheaper to settle than to pay a BK attorney to file for BK.

-          Many people won’t qualify for BK because of their income or assets.

-          Filing BK will kill your credit for years to come, and every lender will know you filed for BK for at least 7 years.

-          BK does not discharge liens on collateral, so if you pledged your home, filing for BK won’t release your home.

 

Let’s keep in mind that when I say that an SBA loan can be discharged, I’m mainly talking about unsecured debt.  If you owe money on an SBA loan and that loan is secured with real estate or some other valuable assets, filing for bankruptcy will not get you off the hook.  In many cases, the lender just needs to prove to the court that there is value in the assets, and the court will allow the lender to go ahead and foreclose.  The point here?  Bankruptcy is not a “cure all” solution to working out your SBA debt issues.

 

The only way that I’ve seen an SBA not get discharged was when fraud was suspected.  In those situations, the banks actually filed something called a “non-dischargeability action”, claiming that the loan was made under false pretenses.  In most cases, the bank claims that the borrower lied on the loan application, and that had the borrower told the truth, the bank would not have granted the loan.  Interestingly, all the attorneys I’ve spoken to about this tell me that proving fraud can be difficult and costly for the lender, especially if the borrower claims that someone else signed the loan application on their behalf. 

 

Overall, I always advise prospective clients to do their homework and explore all options, because there are some cases where bankruptcy is the right path, and other situations where the borrower would be better off attempting to settle their debt.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Settlement or Bankruptcy?

 

(Note: The author is not an attorney and this article should not be construed as legal advice.)

 

As you can see by my little disclaimer above, I’m not an attorney.  That said, potential clients often ask me whether they should file for bankruptcy or try to settle their debt.  In every case, I give them the same piece of advice:  look at all available options, and then make an education decision.  I also stress that when asking for advice, remember who is giving you the advice and what they potentially have to gain from it.

 

When I say that you should make an educated decision, I’m talking about weighing factors like:

 

-          What will it cost you in real dollars to file and get discharged from bankruptcy vs. what will it cost you in real dollars to settle?

-          Are you comfortable having a bankruptcy on your credit report?

-          Are you confident that you’d qualify for bankruptcy discharge?

-          Do you have the resources to settle your debt (also accounting for tax consequences)?

-          Do you have so much debt with so many lenders that settling would be almost impossible?

-          Will a bankruptcy wipe out the liens that your lender has on your home? (Note: in my experience, liens survive bankruptcy, meaning that a release of the lien would still need to be negotiated with the bank.  If your home has sufficient equity to repay the loan in full, there is a chance that the bank could still foreclose despite the bankruptcy).

 

Most of my clients make the decision to try to settle first, rationalizing that if it doesn’t work out, they can always file for bankruptcy after.  That strategy makes sense to me, especially in cases where the SBA debt is the only debt that needs to be addressed.  Banks and the SBA understand that personal bankruptcy is a real possibility in many cases, which is why they are often willing to entertain settlement, especially in cases when the collateral has minimal value, and a discharge from personal bankruptcy would essentially wipe out any chance at a recovery.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA 504 Foreclosure - Less Likely Than Ever

 

For those who aren’t familiar, the SBA has a loan program known as the “504” program which assists small business owners in purchasing commercial real estate.  Here’s how it works in a nutshell:

 

-         A conventional lender funds in 50% of the project.  This debt is not guaranteed by the SBA.  In theory, the lender has little chance of losing money on the loan unless the property value falls by 50% or more. (Note: this is happening more than you think, especially in areas like CA and FL where the real estate market has been hit hard).

-         A local Community Development Corporation (CDC) funds 40% of the project.  This loan is 100% guaranteed by the SBA.

-         The borrower puts in 10% of the project cost.

 

In the current downturn, I get many calls from distressed borrowers who acquired their commercial property via the SBA 504 program.  Often times, they are quite concerned with being able to afford their two monthly loan payments (one to the conventional lender, one to the CDC), knowing that failure to make their monthly payments can lead to a slew of problems, including foreclosure.

 

One trend that I’ve been observing lately is that more often than not, there is no equity in commercial properties for the CDC/SBA.  Why?  Let’s look at an example.

  

Let’s say I bought a commercial building in Arizona 4 years ago for $500,000, and financed the purchase with an SBA 504 loan.  In general, my situation would have looked something like this:

 

As of 1/1/2007

 

Value of Property

$500,000

 

 

Conventional Mortgage Balance

$250,000

CDC/SBA Mortgage Balance

$200,000

Equity In Property

$50,000

  

Now, let’s fast forward 4 years.  The bottom has fallen out of the AZ real estate market, and the unthinkable has happened:  properties are actually selling for 50% (or less) of what they used to.  As you can imagine, that changes the situation with respect to my property:

 

As of 1/1/2011

 

Value of Property

$250,000

 

 

Conventional Mortgage Balance

$235,000

CDC/SBA Mortgage Balance

$196,000

Equity In Property

($181,000)

 

The scenario outlined above is precisely the type of situation that is unfolding all over the country.  The net result?  The CDC/SBA can’t foreclose on the thousands of commercial properties because it’s worth less than what’s owed to the conventional lender (in the example above, there is in theory $15K in equity, but certainly not enough for the CDC to justify foreclosing).  Not that this is a “get out of jail free” card, but at least it’s one less worry that a borrower might have.

           

With all that said, does this mean a borrower is off the hook if there is no equity in the property?  Certainly not.  The CDC/SBA likely has the personal guarantees of the business owner, which means even if the conventional lender forecloses on the real estate, the CDC/SBA has every right to pursue judgments against the borrower and personal guarantors.  So what option does a borrower have if they lose their building but still owe hundreds of thousands or even millions of dollars to the CDC/SBA?  You guessed it folks; the SBA will entertain an Offer In Compromise.           

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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Is SBA Debt Forgiveness Taxable?

Note:  The writer is not a CPA or tax professional.  This article is for general information purposes, and should not be construed as tax advice.  Readers are strongly encouraged to consult their tax professional regarding their personal tax situation.

There’s no doubt about it: negotiating an SBA loan settlement can be taxing.  These days, lenders are so overwhelmed with defaulted loans that it can take an act of Congress to get them to even return your phone call.  Then, when they do return your call, they ask you to fill out a series of onerous and confusing forms.  Once you return that info, it’s likely that your initial attempt as a settlement offer will be summarily dismissed.  From there you negotiate, fighting tooth and nail in order to get a deal done.  Finally, after weeks or even months of mind-numbing, energy-sapping negotiating, a deal gets done.  You send them a check, and finally breathe a sigh of relief.  After all, the situation is now over and behind you right?  Well, not exactly.  At least not according to the folks at the IRS.

Debt forgiveness, you see, is treated as taxable income.  Why?  In a nutshell, if someone gives you money and you don’t have to pay it back, it’s taxable. Just like you have to pay taxes on wages from a job.  Part of the reason that debt forgiveness is taxable is because otherwise, it would create a giant loophole in the tax code.  In theory, your boss could “lend” you money every 2 weeks, and at the end of the year they could forgive it and none of it would be taxable.

I’ve had clients ask me to try to negotiate the taxability of debt forgiveness.  Unfortunately, no lender (including the SBA) has the ability to do such a thing.  Just like your employer is required to send a W-2 to you every year, a lender is required to send 1099 forms to all borrowers who have debt forgiven.  That said, just because lenders are required to send 1099s doesn’t mean that you personally automatically will get hit with a huge tax bill.  Why?  In most cases, the borrower is a corporate entity, and you are just a personal guarantor.  I know that some lenders only send 1099s to the borrower.  The impact of the 1099 on your personal situation will vary depending on what kind of entity the borrower is (C-Corp, S-Corp, LLC, etc).  Most CPAs will be able to explain how a 1099 would manifest itself.

While I can’t tell you the specific impact that SBA debt forgiveness will have on you, the point of my article is really just to recognize that loan forgiveness does potentially have tax consequences that a borrower should look into so they can make the most informed decision possible.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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Does the SBA Forgive Loans?

As is the answer to many of life’s complex questions, the answer is….it depends.

Like dear old dad once told me, you can’t get something for nothing in this life.  That axiom holds true with respect to settling SBA debt.  I’ve had people call me looking to settle, and when I ask them how much they’d be able to offer as a settlement to the SBA, they reply “well, I don’t have anything to offer right now”.  A case like that is dead in the water. 

Many people are under the impression that just because they have difficult circumstances in their life, their lender or the SBA will simply let them walk away from the debt in exchange for nothing.  As a borrower once put it, they want the SBA “to let this little fish swim away”.  Unfortunately, that’s not something that is going to happen.  Look at it from your lenders perspective.  Why would they relieve you of your obligation to repay the debt in exchange for no consideration?  If you can offer nothing, there is quite simply nothing to discuss.  I’m yet to see a tale of woe (i.e. I lost my job, my house, my dog etc) that convinces a lender to simply forgive debt.  Banks and the SBA are not charities, so don’t expect a handout.

Like most issues at a bank, the decision to settle debt is a business decision.  Lenders tend to ask one question when evaluating an offer:  what scenario will result in the best possible recovery for the bank?  If you offer $10,000 in cash, and their alternative is trying to garnish your wages for 20 years, then they take the settlement.  If you offer $10,000 in cash, and they can sell your home and clear $50,000, then they will foreclose.  If a borrower understands that concept, it will make the settlement process a whole lot easier.

So to answer the original question of whether the SBA forgives loans?  No.  Does the SBA settle loans?  The answer is yes, but only when it makes business sense to do so.  

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Loan Foreclosure – They won’t really take my home, will they?

In my experience, there are two events that borrowers fear the most with respect to the repercussions of an SBA loan default:  personal judgments and foreclosure on a personal residence.  For most, it just wasn’t supposed to be like this.  When you took that SBA loan, your future was bright and business was booming.  When you applied for your SBA 504 or 7a loan a few years back, your lender required you to pledge your home.  You didn’t love the idea, but at the time you just couldn’t imagine a recession this bad.  You couldn’t imagine a recession would last this long.  So you reluctantly agreed to pledge your home, never thinking for a nanosecond that the “F” word would come into play.  In the blink of an eye, the stock market sank like a stone and the economy came to a screeching halt.  Business slowed, cash got tight, and the worst case scenario became a reality: you can’t afford your monthly SBA loan payment.  For one reason or another, a deferment or modification didn’t come to fruition, and you have no idea if or when you’ll ever catch up.

As you mull over the plight of your business, your rising credit card debt, and which of your staff you may have to let go, you begin to think about the worst possible scenario:  will I lose my home because I defaulted on my SBA loan?

Generally speaking, the SBA does encourage lenders to explore all workout options before resorting to foreclosure.  If you can pay over time or refinance, you can avoid foreclosure.  Of course, both of those options require you to have income.  For many borrowers, the business was their sole source of income, so now that the business is defunct they have no ability to make payments (Strike One). To make matters worse, the home has equity in it (Strike Two).  Lastly, the borrower has no access to a lump sum of cash (Strike Three).  This is the point at which foreclosure can become a real possibility. 

The reality of the situation comes down to this:  if you owe money on your SBA loan, have no ability to repay it, and there is equity in your home, your lender will have no choice but to liquidate the property in order to recover their funds.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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Common Questions About SBA Loan Forgiveness, Part I

 

Is it possible to settle an SBA Disaster Loan?

 

It is possible to settle an SBA disaster loan.  It should be noted, however, that disaster loans are handled by a different area than “regular” SBA loans.  Technically, they have the same SOPs (standard operating procedures), but the rules tend to be interpreted a little differently by the disaster loan folks than they are by the “regular” SBA loan area.

 

How long will it take to settle my loan?

 

It depends.  There are many factors that can drag out the process.  Is there business equipment that needs to be sold?  Is there real estate that needs to be sold?  Are you dealing directly with the SBA, or is your lender still servicing the loan?  Like a construction project, the rule of thumb is that it will always take longer than you expect it to.  With that said, don’t despair.  It is possible to settle.  The SBA is fair (in my opinion), so if you abide by the settlement rules, and understand how the SBA is going to evaluate your offer, your chances of settling are good provided you can raise an acceptable amount of cash.

 

What can an SBA workout specialist do for me that I can’t do for myself?

 

A knowledgeable SBA workout expert will have a strong knowledge of the SBA settlement process. They will have a firm grasp of how the SBA will analyze your financial situation in order to determine whether your offer is acceptable.  In addition to their ability to determine a fair settlement offer, an SBA workout expert will be able to challenge lenders, who often hide behind the SBA as an excuse not to settle.  Some lenders will cite specific SBA guidelines as reason why an offer cannot be acceptable.  A seasoned SBA workout pro knows the SBA rules, and can challenge the lender when they know that something is not factually correct.  As a business owner who is going through the settlement process for the first time, how could you possible know all the SBA rules and practices?  More importantly, how would you know if they lender is accurately interpreting the SBA guidelines? 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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Common Questions About SBA Loan Forgiveness, Part II

 

What’s the worst that can happen to me if I default on an SBA loan?

 

Oh man, where do we start?  Not to be the bearer of doom and gloom, but there are some very severe consequences to defaulting on an SBA loan.  They can foreclose on your home if it has equity in it.  They can shut down your business and sell all the business equipment.  They can get a personal judgment against you, and subpoena you for information.  If you don’t respond to the subpoena, in some states you could be arrested.  If you didn’t pledge your home to start with, in some states they can place a judgment lien on your property that will remain there until you sell the property.  In a nutshell, default is bad, and you should be proactive about settling.

 

When I make a settlement offer, does it go through my lender or directly to the SBA?

 

It depends on whether your lender has referred the matter to the SBA.  In most cases of default, the lender continues to service the matter until they feel that all avenues have been exhausted, and there is no chance of additional recovery. 

 

Once the lender reaches that point, the file is “wrapped up” and referred to the SBA for further collection efforts.  Once the matter is referred to the SBA, the borrower and guarantors will typically get a letter from the SBA.  If you receive such a letter, your lender is no longer involved in the negotiation, and you are free to deal directly with the SBA.  On the other hand, if you defaulted on your loan recently, and there is collateral remaining that has not been liquidated, you will most likely have to continue to deal with your lender.  If you try to deal with the SBA directly, chances are that they will refer you back to your lender.

 

My bank has not responded to my SBA settlement offer.  Am I off the hook?

 

Probably not.  In today’s economy, the “workout” areas at many banks are busting at the seams.  There are simply too many files, and not enough hours in the day to give proper attention to each file.  Just because they aren’t calling you back or responding to your emails, it doesn’t mean you have slipped through the cracks.  I often hear from people who stopped paying 3 years ago, assumed the matter was long gone, then out of the blue they get a letter from the US Treasury (or a collection company on their behalf).  To add insult to injury, they typically will add on thousands of dollars in fees and penalties.  So if your lender is not being responsive, I suggest that you stay persistent, or hire a workout consulting to stay persistent on your behalf.

 

My bank told me that because my loan is guaranteed by the SBA, they cannot settle.  Is that true?

 

No, but I’ve heard this amazing tale enough times that I think its worth addressing.  The SBA has created a process, and specific forms, solely for the purpose of settling debt for less than the full balance.  If your lender is throwing road blocks up and blaming the SBA, its likely because 1) Your lender doesn’t do a lot of SBA lending and is not aware of the OIC process 2) Your lender does not want to settle, and is trying to blame the SBA (Note:  lenders are not required to settle, although most are willing to).

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Personal Guarantee Release: Victory!

 

Today’s article is a story about how one of my client’s was able to successfully settle his debt and get his personal guarantee released.  Steve (name changed to protect my client’s privacy) had a business that had failed, but was left with a couple of loans for a few hundred thousand.  Discusses lessons learned.

 

Lessons to be learned from our success:

 

-          Lenders fully expect you to scratch, claw, beg, and borrow to raise funds.  An Offer In Compromise is not a “free pass”. If you want to be successful at a settlement attempt, you need to be willing to search every outhouse, henhouse and dog house to find money.  Since the lender is likely to be taking a loss, I think it’s fair for them to expect you to experience some financial discomfort I order to settle.

 

-          The process can be arduous and time consuming, and working with a professional does make a difference.  Dealing with bankers and lawyers can be a daunting task, especially if you are not familiar with banking terminology and legal documentation.  Banks will always steer you towards what in their best interest.  It only makes sense that you should have a sounding board to make sure you are getting a fair deal.

 

-          The sooner you can begin working towards a settlement, the better.  While we were able to settle in this case, my client had a personal judgment granted against him, and the bank was on the verge of garnishing his wages at his new job.  The judgment could have been avoided had my client brought me into the loop sooner.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Default – 3 Key Elements To A Loan Settlement

 

Quite often, I hear from distressed borrowers who want to settle their debt.  In some cases settling is possible, in some cases its not.  The purpose of this article is to explain three key elements that must be present in order for a business to have a chance to settle their SBA debt.  Please keep I mind that this is NOT an exhaustive list.

 

1)      The business must have ceased operations (Note: some exceptions do apply!).  This means that you’ve closed your doors for good, or you have sold the business to a non-affiliated third party.  The reason that the SBA wants the business to have ceased operations is to ensure borrowers don’t continue to benefit financially after the SBA and the lender have taken a loss.

 

An OIC will be considered if a business is sold as a “going concern” to a non-affiliated third party.  The reason the buyer needs to be a non-affiliated third party is to ensure that business was simply sold to make the borrower eligible for a debt settlement, only to have the borrower re-purchase the business at a later date.

 

2)      All business assets must be liquidated.  This element applies to situations where the business has closed for good.  The SBA wants all assets to be liquidated and applied to the loan balance BEFORE any OIC discussions begin.  That way, they know how much is owed after all possible business collateral has been liquidated.  (Note:  Many borrowers want to purchase their own assets from the bank.  Typically, the bank will not allow this, as it would basically mean that the borrower could remain in business, which as we learned above, is not something the SBA will entertain.)

 

3)      You must have access to cash.  You’d be surprised how many prospective clients come to us wanting to settle, but when we ask how much they have to offer, they respond that they don’t have any money to offer.  If you don’t have cash in your account today, there are creative ways to raise cash that you need to explore if you hope to settle your debt.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Default:  Banks Are NOT Required To Accept a Settlement Offer

 

So your business is closed, all the business assets have been liquidated, and all that remains is a fairly substantial pile of debt.  Now what? One would think that the next logical step would be to submit an Offer In Compromise package (something this writer specializes in for clients) so the debt can be settled once and for all.

 

Not so fast.  Here’s the thing:

 

For those not familiar with the process, the Offer In Compromise (OIC) must be submitted through the lender.  When the lender submits the OIC to the SBA, the bank is asked whether they recommend that the offer be approved.  In many cases, banks don’t want to settle, which means the OIC is dead in the water before it even makes it over to the SBA.

 

Why would a bank not want to settle?  Perhaps they think a borrower was fraudulent.  Or they think a borrower isn’t making a strong enough offer.  Or they don’t want to bother with the paperwork necessary to submit the OIC to the SBA (this alone is great reason to have a workout professional prepare an OIC package, and deliver it on a silver platter to the bank).  Some lenders simply have a “no settlement” policy for certain loan types or loan amounts.  No matter that the reason, the bottom line is that the OIC is not something lenders are required to consider.

 

So how can a borrower improve their chances of their lender supporting an OIC?

 

It sounds simple, but many borrowers are elusive and hard to track down because they don’t want to deal with the stresses of talking to collections people.  If you are intimidated by collections people, then find someone (like us) to represent you.  Not only will a workout professional deal with the wrath of the collections people, they’ll make sure you don’t get steamrolled with unreasonable demands. 

 

If you submit an OIC, make sure you are offering full disclosure in terms of your assets and your income.  If you get caught leaving a major asset off your PFS (yes, there are ways to check), your chances of having a settlement accepted will fall dramatically.

 

Another way to help your chances of having an OIC accepted is to fully cooperate in the liquidation of your business assets.  Simple things like providing access for appraisers and returning phone calls to schedule appraisals can help you tremendously in the long run.  In short, when you make your lenders life easy, there’s a chance they’ll return the favor when its OIC time.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Default and Debt Forgiveness: Ethics and Legality of on Asset Dump Buy Back

 

About once a week, I get a call from someone who heard about a really great strategy that is guaranteed to strip their assets of debt so they can continue to operate the business, all while getting the bank and the SBA to go away and leave them alone.  While this strategy is not a new idea, the question that always comes up is: is this legal?  How do lenders feel about this strategy?

 

Before we get into how a lender feels about an Asset Dump Buy Back, here is how it works in a nutshell: 

 

Bob the Baker took a $500,000 loan from the Bank of Mula in order to finance the purchase of his bakery.  After a few years of early mornings, late nights, and countless weekends, Bob the Baker was still in the red (i.e. NOT making money).  After thinking about it long and hard, Bob the Baker decides that his business simply can’t support a $500,000 loan.   He calls the bank and tells them that he will be closing his doors.  In the blink of an eye, the Bank goes into liquidation mode, and immediately starts looking for a buyer of the equipment.  They manage to find a buyer, which calls itself Getting A Great Deal Corp, who offers $10,000 for all the business assets.  While the bank is taking a bath by letting the equipment go for only $10K, they don’t really have any other alternatives, so they go ahead and sell the assets to Getting A Great Deal Corp.

 

Once the assets are sold, Bob the Baker submits an Offer-In-Compromise to the Bank/SBA for $20,000 (“This is all I have to offer” he tells the bank).  The bank/SBA accepts the offer, thinking that litigation will get them nowhere. 

 

After the bank/SBA are satisfied and turn their attention to other matters, Bob the Baker goes and buys the assets back from Getting A Great Deal Corp for $30,000 and VOILA! Bob the Banker has successfully traded his $500,000 loan for $50,000, AND he got to keep his business.  As promised, Bob has successfully stripped his assets of debt.    

 

Now, some points to ponder:

 

-          In this example, the bank was unaware that they were selling the assets to a third-party who has plans to sell the equipment back to Bob the Baker.  In many cases, the bank will NOT agree to such a transaction, as many banks will only sell the assets privately if the buyer is an unaffiliated third party (aka an “arms-length” transaction).  It’s possible that some banks would look at this as fraud or collusion if you don’t inform them of the relationship. 

-          To further drive home the point above, in the SBA Offer In Compromise form, it states that one of the key elements to a workable offer is “No fraud of misrepresentation”.  I’m not saying that it’s necessarily fraudulent to omit details of who the assets are being sold to, but at the same time it would not surprise me if a bank or the SBA saw it differently.

-          So far, my examples have been involving private sales.  In the case where it’s a public auction, anyone has a right to bid, including the business owner.  To my knowledge, there is no way to prohibit an individual from attending or bidding at an auction.  But again, if the bank finds out that you were re-purchasing your own equipment, that may impact whether they decide to settle or pursue you under the terms of your personal guarantee (since you are presumably going back into business, and thus might have income to repay the outstanding debt).

 

Overall, I subscribe to the theory that if you have to hide or omit facts, there is probably something wrong with what you are doing.  Sure, it might work, and you’ll be back in business and free of debt.  On the other hand, if your bank or the SBA learns the details of your plan, they could possibly accuse you of fraud.  Even if you did get away with it, I feel that a Dump Buy Back falls within a very gray area in terms of morality.  If the banks and the SBA were ok with this strategy, they would simply write down loan balances (which the SBA most certainly will NOT do).

 

I’m sure this strategy has been performed successfully, but it’s not something I’d ever recommend to a client. I consider it my job to help business owners and not put them in harms way, and the last thing I would want to happen is for a client to go ahead and do this, only to end up with more trouble than they started with.  Personal judgments and foreclosures are one thing, but when the word fraud enters the conversation, then you are potentially looking at criminal matters.

 

Yes, there is something to be gained from a Dump Buy Back.  On the other hand, if there is the slightest chance of adverse consequence, I’d recommend just going out and buy someone else’s used equipment.  That way there is no gray area from an ethical or a legal stand point.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

 

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SBA Default: Common Questions From Clients 

 

I paid too much for my business.  Will my lender/SBA reduce the principal amount I owe so I can afford the payments?

 

Sadly, no.  The only way that the SBA will consider a settlement is after the businesses ceases operations and all business assets have been liquidated (Note: some exceptions do apply).  Some people will seek to sell their assets to a related party (friend/relative/business partner), then buy them back later (see our article on Ethics and Legality of an Asset Dump Buy Back).  Unless this is explicitly disclosed and approved by the lender/SBA, it could be construed as fraudulent.

 

How much will the SBA be willing to settle for?

 

There is no set formula.  Different banks have different policies regarding how much they are willing to settle for.  Some don’t have set rules, others take a hard stance and pick an arbitrary percentage regardless of your personal situation.  Very often, how much the SBA is willing to approve will depend on the personal financial situation of the guarantor.

 

The SBA guaranteed 75% of the loan to my lender.  That means as a guarantor, I only owe 25% of the balance, right?

 

Unfortunately, no, you are still responsible for the entire balance. The SBA guarantee has no impact on how much you legally owe.  The guarantee ensures that the lender’s financial loss is minimized, but it does not distinguish the debt owed by the borrower or guarantor.

 

Do I need a lawyer to settle my SBA debt?

 

No.  Settling SBA debt is largely a financial matter. While we’d recommend having an attorney review legal documents, the fact is that SBA settlements often involve no signing of any agreements at all.  When engaging someone to represent you, you need someone with a through knowledge of the SBA process (many lawyer’s don’t), and an understanding of the philosophy behind SBA settlement policies.

 

Will the SBA foreclose on my home?

 

If there is equity in your home, and you are unable to reach a settlement, foreclosure is a possibility.  The best way to avoid such a situation is to get the debt settle prior to the SBA or your lender ever starting the foreclosure process. Most lenders prefer not to foreclose, and are willing to work out payment arrangements to keep you in your home.

 

If I want to settle my debt, I sell my business assets and turn over the cash to my lender, right?

 

Sorry, selling the business assets is just the liquidation phase.  After the cash from the sale of the assets is applied to the principal balance, only then does the settlement negotiations begin.  Settlement discussions can only be had one the business ceases operations (some exceptions do apply), and all business assets have been liquidated.

 

Why are your fees lower than other SBA workout firms?

 

I believe my fees are appropriate for the services I provide.  While I’m in business for profit, I also feel responsible for the well being of my clients, which means doing the right thing and charging reasonable fees for my services.  Rather than charge no fee up front and a whopping percentage on the back end, I charge a reasonable up front fee for time spent, and take a reasonable percentage upon a successful settlement.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Loan Modification: Not The Way To Go?

I recently read an article by a consulting firm about how an SBA loan modification is not the way to go.  Really?  In no circumstances would it make sense for a borrower to pursue a loan modification?

First of all, let’s get our terminology straight.  The article was talking about 3 to 6 month temporary payment relief, which is technically a deferment, not a modification.  A deferment simply means that payments are deferred, while a modification is a change to the loan terms that typically are in effect for the life of the loan.  The most common examples would be rate adjustments or term extensions.

Both of these types of modifications can have material impact on the monthly payment for the life of the loan.  So again I ask the question:  why would this not be a good thing for a borrower?  I have helped a number of customers with loan modifications, and because the bank granted a modification, they are in business today.  I have a borrower who was granted a modification that lowered his payment from $3,500 to $1,800 per month.

My guess is that consultants who don’t have the experience with financial statement analysis and modifications prefer to steer their customers away from modifications simply because the consultant can’t help them with such a request, and therefore there is no financial incentive for the consultant to recommend such a request.  A good workout consultant can talk to you about your situation, and recommend the strategy that works best for you, the client, and not simply steer you towards the strategy that earns the highest fee for the consultant.

The article I mentioned earlier goes on to say that the only way to is get a large reduction of debt via their “sophisticated strategy”, which usually entails deceiving your bank by selling your business to a friend, or deceiving your bank by starting a new corporation (owned by you are a related party), and selling the assets to that new corporation.  In this example “sophisticated strategy” is also know as “fraud”. (Note: legitimate debt settlement is possible, but neither of those strategies qualifies as legitimate).

So at the end of the day, is a SBA loan modification for everyone?  No, certainly not.  That said, there are some business owners who would benefit tremendously from a loan modification, and it’s just plain wrong for someone to make a blanket statement that a modification is “not the way to go”.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Default: Our Guaranty To You

 

On the surface, the claim that “I 100% guaranty that I can settle your debt”, sounds pretty darn good.  The only problem such a claim is that it’s basically impossible to back up unless that statement includes the qualifier like “I 100% guaranty that I can settle your debt as long as you have unlimited funds with which to negotiate with”.   So when a prospective customer asks if I offer any guarantees, I tell them that I don’t.  Why? The settlement process involves a number of players: me (the workout specialist), you (the borrower), your banker, your banker’s boss, the SBA specialist, and the SBA specialist’s boss.  With so many moving parts, it’s impossible to predict with 100% certainty how any party will react to a settlement offer.  Beyond that, while in most situations the lender will be open to some sort of settlement, whether the borrower can actually meet the terms of the lender is a completely different story.  So if in 95% of cases, I get the bank to make some sort of concession, but only 20% of my clients can meet all the terms of the bank, is my success rate 95%?  I think not.

 

Workout Specialists like Distressed Loan Advisors are similar to tax preparers.  Why?  Clients want to judge us solely on results, while the truth is that only a portion of our success depends on us.  How so?  Did you ever have a friend who got his taxes done, and they said something to the effect of “My tax guy is really good, he got me $1,000 back!”?  Here’s a little secret about your tax guy: he doesn’t know anything more than any other CPA, accountant, or tax franchise.  All he did was plug your numbers into a tax software program, answers some questions about you, and POOF, you get a refund.  Just because he knows about tax preparation doesn’t change how much you income earned, how much was withheld, and how much you owe or will get refunded to you.

 

The point that I’m making here is that whether or not you will receive a tax refund is more dependent on your personal tax situation, and less dependent on your tax preparer knowing secrets that nobody else in the world knows.  And guess what, THE SAME IS TRUE OF THE LOAN SETTLEMENT PROCESS.

 

Don’t get me wrong, we are EXPERTS at the SBA offer in compromise process, but whether your lender or the SBA is going to accept a settlement offer is partially dependent on YOU, the borrower.  Yes, I can be creative in my proposal, and yes, I know from extensive settlement experience what the SBA is more likely to say yes to.  I also know that the success of a settlement offer is directly related to the borrower’s personal financial situation.  If you make $1 Million per year and have no other debt, the chances of settling a $10,000 debt are poor.  I just don’t have any tricks in my bag for such a situation.  My value comes to light when I effectively demonstrate to you lender and the SBA that what you are offering truly is the most you can offer.

 

While we won’t get your hopes up by guaranteeing a settlement, here is what we can promise:

 

-          We will explore every possible avenue and settlement option, and make you aware of them so that you can make the most informed decision possible.

-          We will not make promises of success just to get your business, or as a marketing tool.  Sure, if we made broad guarantees we might get more clients, but in the process we’d have many disappointments along the way.  Work with us and you’ll get an honest assessment of your settlement prospects right up front.

-          All of our actions will be in your best interest.

-          We will be there to guide you through each and every step of the process.

-          Our fees are contingency based, meaning that a portion of the fee depends on our ability to get the job done for you.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Default: Why Hire A Workout Consultant?

 

More than once, a prospective client has asked us something to the effect of “Why should I pay you to do something that I think I can do myself?”  The first time I was asked, I felt a little threatened.  But as time goes on, I’ve realized that it’s a perfectly legitimate question to ask.

 

So when people ask the question, I put it to them like this:  About a year ago, I purchased a home that needed to be renovated, and hired someone to do that work.  Why did I hire someone?  Actually, for the same reasons that it makes sense for a business owner that needs to settle or modify debt to hire a firm like ours:

 

1)      Why muddle through when you have an expert who can guide you? You can try to learn as you go, or you can hire an expert who has been through this many times before.  I suppose I could have gone to home depot, bought a book, read the town codes, done the work myself, and crossed my fingers and hope that I did it correctly. Of course, a book or the internet can only help you so much.  As they say, there is no substitute for experience.  In the case of a settlement, how much should you offer?  What information should you disclose?  What order do things go in?  What documentation do you need? 

 

2)      Your time is valuable.  You are busy with your day job.  Why not let a seasoned expert take care of the your settlement so you can focus on your regular life.  Attempting to work through a process that you’ve never been through before can be stressful, time consuming, and costly.  Often times, a great settlement is not so much about what you offer, but more about what you don’t offer.

 

3)      Trying to save a few bucks upfront can cost you thousands in the long run.  This point was one that I learned the hard way after I tried to replace my bathroom floor, only to find out that it needed to be torn up in order to fix the plumbing.  Much like that situation, you need to think about working with a workout consultant like this:  By not hiring a workout professional, you might end up paying tens of thousands of dollars more than you needed to.  It sounds very infomercial-ish, but my services usually pay for themselves.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Loan Default: Waiting To Settle Can (And Probably Will) Cost You

 

It’s a common scenario that we’ve seen a number of times.  We get an email from an SBA borrower who has closed their business.  While they knew that they’d be responsible for the debt since they signed a personal guaranty, they never heard anything from their lender.  For this reason, the guarantor procrastinates when it comes to settling their debt in exchange for the release of their personal guaranty.

 

Has the lender forgotten about them?  Has their loan slipped through the cracks?  Then, a few weeks, or even months later, a letter arrives demanding payment on the loan.  To the borrowers surprise and confusion, the letter is not from their lender, but rather directly from the SBA.  Despite a time frame by which the borrower must respond, they take a passive approach.  They don’t respond to the letter, and they don’t take the initiative to hire us to get the situation worked out on their behalf.

 

After two months go by, the borrower receives another letter, this time from a collection agency, and to the guarantors dismay, an additional $5,000 has been added to the loan balance.  In a panic, they call us asking for help.  We call the collection agency, who are only willing to consider offers on their terms, and they have no sympathy for the borrowers tale of woe.  The guarantor is now stuck, as they cannot meet the terms that the collection company is demanding. 

 

What are the lessons to be learned here?

 

1)      If you have defaulted on an SBA, doing nothing and waiting to see what happens can result in dealing with a collection company, whose settlement terms will often be less flexible than if you had dealt with your original lender or the SBA.

2)      If you fail to respond to your lender/SBA about settling your debt, you are likely to have thousands of dollars in additional fees added to your loan balance on the file is passed to a collection company.

3)      Once your file is passed from the SBA to the Treasury (or a collection company who is working for the Treasury), your window of opportunity to settle with the SBA will be closed.

4)      Just because your lender is not calling you or sending you letters, it does not mean you are off the hook.  The SBA, US Department of the Treasury, and collection agents will likely be contacting you.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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How can I stop my SBA Lender from Foreclosing on my home?

 

I got a call this week from a guy who is going to lose his house next month.  He had a $500,000 SBA loan which he defaulted on a few years back.  Since then, the business has closed, and there is no collateral remaining except for his house that he pledged at the beginning of the process.  He went on to tell me that he's desperate for a way to avoid foreclosure, but his attorney told him it was pretty hopeless.  Except for the SBA loan, he had no other liens on the home, which meant that all the proceeds from a foreclosure would go to the SBA Lender.

 

Below you will find my advice to him, and answers to his major questions:

 

1) My Advice:  SBA Lenders are willing to make reasonable business decisions, therefore if you offer an amount equivalent to the equity in your home, there is a chance the lender would call off the foreclosure sale.  In this case, the guy said the home was worth $250,000, so coming up with that much cash could be  problematic.  I suggested that he quickly look into a cash out refinance of his home, as a lump sum payment would give him the best chance.  He could also make an offer to pay over time, but that's a less attractive option for a lender.  After all this guy already stopped paying back his loan once, the bank says, so what's to stop him from doing it again?  Bottom Line: If the lender will end up with about the same amount of cash by making a deal with you then they would by foreclosing, they should be willing to make a deal with you.

 

2) Borrower's Question:  I read a newspaper article that banks don't want to foreclose on houses anymore because its costs a lot of money to foreclose and maintain a house.  Why don't they just make a deal with me?  While its true that in general, lenders may be more patient with borrowers, when push comes to shove, if a borrower stops making payments, the only way to recover money that they have lent out is to liquidate the collateral (ie foreclose).  Even though the housing market is battered in many areas of the country, it certainly doesn't mean that home are completely devoid of value.  It just means that the lender will get less cash when they sell.  Bottom Line:  Trying to reason with a lender about how your house isn't worth much, and that it will cost them a lot to foreclose is a pointless argument that you will lose.  Banks will foreclose if they have to, regardless of what you read in the newspaper.

 

3) Borrower's Question:  Why can't I try to settle for less than the value of my house?  In this case, the borrower could not understand why his SBA lender would not accept a settlement offer of $50,000, despite the fact that his home was worth $250,000.  Again, the borrower tried to reason that with the housing market being so bad, the lender should take $50,000.  Under no circumstances is your SBA lender going to settle for less than the value of the collateral.  Why take $50,000 when they can get $250,000 (or $250,000 less the costs of foreclosure)?  Also, with an SBA loan, the lender is held accountable for their actions by the SBA.  This means that if the bank settled for $50,000, they'd end up getting a bill from the SBA for about $200,000.  No lender wants to ever see such a bill arrive in the mail.  Bottom Line:  With the SBA looking over the lenders shoulder, the lender will not settle for less than the net value of their collateral.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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The Best SBA Settlement and Offer In Compromise Advice You’ll Ever Get

 

I’ll cut to the chase.  The best advice I could possibly give to a client is this: BE HONEST AND TELL THE TRUTH.

 

When you trying to settle your debt following a business failure, your lender and the SBA are seeking full disclosure.  So what does this mean to you?

 

-          Don’t “fudge” your Personal Financial Statement.  Intentionally omitting major assets is the fastest way to convince your lender/SBA that you are trying to avoid repaying your fair share of what you owe.  Lenders will run your credit report and perform asset searches to confirm that your PFS is accurate.  Mortgages show up on credit reports, so if you are thinking of “accidentally” forgetting to list your home which has equity in it, don’t.

 

-          If a “strategy” seems too good to be true, it probably is.  If someone has convinced you that the SBA rules have loopholes, and they will show how to jump though them, turn and run.  The idea that you should sell your business to a friend, or to a new corporation (that was set up just so you could claim the business ceased operations) are actions that the SBA would not approve of.  Remember, you are the one signing your name on the Offer In Compromise Form, not your workout advisor.  That means if the bank/SBA discovers you are trying to defraud them, it’s YOU who they’ll be coming after.

 

-          Play It Straight.  The whole point of the Offer In Compromise is to provide guarantors the opportunity to settle their debt because they truly can’t afford to pay it back.  The SBA won’t settle simply because it would be a nuisance for you to make payments.  Not because you have the money, but want to buy a new jet ski.  There is nothing wrong with putting forth an argument about why you can’t afford to repay your lender/SBA in full. 

 

The failure of a business is a life changing event (in a bad way), and we understand that.  The goal of this article is to point out that by trying to avoid paying what you owe by misrepresenting your situation, you risk making a bad situation even worse.  Nobody has ever been put in jail for borrowing money, making an honest effort, and not being able to pay it back.  Plenty of people have gone to jail for committing fraud.  Keep that in mind when making submitting your Offer In Compromise.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Default Is Not A Reason To Lie or Cheat

 

Article that discusses the ethical and legal reasons why borrowers who are facing SBA loan default should think twice before buying in some “strategies”.  As with anything in life, if it seems too good to be true, it probably is.

 

The more I hear it, the more upsetting it is.  About once a week I get a call from someone who says they talked to another firm who told them that the way to get out of a personal guarantee is to do one of two things:  1) Start a new corporation and then sell the assets to yourself or 2) Sell your assets to your friend.  No matter how you spin it, the bottom line is that such strategies are based in misrepresentation and fraud.

 

I’m not saying that losing a business is easy.  I’m not trying to tell you that settling your debt will be a breeze.  It’s times like this that true character is revealed.  Are you going to play it straight and take your medicine, or are you going to try to talk yourself into the misguided theory that it’s not about right and wrong because “it’s business” and “the bank would screw me if they had the chance, so I’ll screw them too”?

 

Let’s put aside the ethical side of my objection to this scam.  Ask yourself these questions:

 

-          Are the people who are advocating this strategy signing any of the documents that are being submitted?  (My guess is probably not.)

-          If this strategy is legitimate, why not tell your bank and the SBA what you are doing? (Because it’s NOT legit, that’s why.)

-          If this were an acceptable strategy to your lender and the SBA, they would just lower your loan amount and let you keep operating. 

 

I know despite my pleadings there are some people who will still go ahead with this “strategy”.  If that’s the case, just remember: it’s a rare case that you’d go to jail for not paying your bills, but white collar crimes like fraud result in people go to jail all the time.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Loan Default:  What Are My Options?

 

It’s not hard to tell when your business is struggling.  Month after month, there is not enough money to go around.  Month after month, everyone gets paid but you, the person who has sacrificed everything to make this business work.  When things start looking really bad, you can’t even afford to pay your expenses or your own salary.  At some point, you will start wondering if this business of yours is going to make it, or if it’s going to limp along for a while, and eventually die a slow death. 

 

The purpose of this article is to discuss what options exist for business owners who have defaulted or are on the verge of defaulting on their SBA loan.  We will cover your options if you want to stick it out and try to remain viable, if you want to pack it in, and if you just aren’t sure what the heck to do.

 

Deferments and Modifications

 

If your business is struggling to meet your debt obligations, but you firmly believe that you are the victim of a temporary economic lull that the business will ultimately recover from, your best chance for relief is either a loan modification or a loan deferment.  Lenders and the SBA will consider granting a modification/deferment to borrowers who they deem to be worth helping.  A few factors that your lender will taking into consideration:

 

-          Have you have a modification/deferment before?

-          Does the business have a satisfactory repayment history prior to the current situation?

-          What collateral is there for the loan?

-          Do current cash flows demonstrate the business’ ability to make the deferment/modification payment?

-          What steps has the business taken to rectify their current cash flow crunch (aside from asking for a deferment)?

 

SBA Offer In Compromise (Settlement)

 

For those who have decided that it’s time to cut their losses and close up shop for good, the SBA does allow guarantors to make a settlement offer if a deficiency exists following the liquidation of loan collateral.  This option is usually only available to businesses that have ceased operations (Note: certainly loan types can be settled without closing the business).  When considering an Offer In Compromise, keep the following in mind:

 

-          The purpose of the OIC is for the lender/SBA to recover all available funds from the guarantors without having to forcibly take the funds via litigation.  This means the SBA will not arbitrarily take any amount that is offered.  They will only accept offers that they feel are comparable to what they’d get through legal means.

-          If you plan to stay in business, debt settlement or debt reduction is not an option that the SBA will consider.

-          Selling business assets to another entity that you own, or to a related party in order to give the appearance of business closure can be considered to be fraudulent.

-          Starting a new business under a new name, but basically servicing the same customer base in order to give the appearance of business closure can be considered fraudulent.

-          The SBA will consider both lump sum settlements, as well as payments over time.  Lump sums are generally preferred.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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The SBA Offer in Compromise - Debt Settlement 101

 

Making the decision to close your business is not easy, but often times, it is absolutely the correct thing to do. Once you make the decision to close your business, the next inevitable question is: Now what?

If you are closing your business, you should establish a plan. That plan usually means working with your bank. Presumably, the SBA loan you have is secured with the assets of your business. That can include tables, chairs, ovens, sinks, etc. Before they will entertain talk of settling your debt, your bank will first want to liquidate all the collateral (the one exception could be your primary residence). You need to contact your bank, explain to them that you have closed, and you are willing to cooperate however you can. This will usually entail the bank valuing the assets, and if they have value, they will sell them and apply the funds to your loan balance.

Once the business is closed, and all the business assets have been liquidated, you will then be eligible to submit an Offer In Compromise (OIC) to the SBA. This is typically accomplished by submitting the OIC through your lender. Your lender will review the OIC, then forward it on to the SBA (Note: the SBA will want to know if you've been cooperative, so play nice with your bank). It's important to keep in mind that if your home is being held as collateral, your OIC offer will need to at least cover the amount of equity in your home. If you don't offer at least that, the SBA is likely to reject your offer.

If your offer is strong enough and the SBA approves it, once you pay what you agreed to pay to settle the debt, the SBA will release your personal guaranty and any remaining liens on your home. Keep in mind that if you are paying over time, these releases will only come once you've paid the entire amount of the OIC.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Loan Default: What Does The SBA Look For In A Settlement Offer?

 

One of the most common questions I get about SBA loan default is “How much should I offer to settle my SBA debt?”  And I always give the same answer: It Depends.

 

So what does it depend on?  On you, of course.

 

When evaluating a settlement offer, the SBA asks for a number of financial documents.  The intention behind asking for all the info, aside from making you go blind on paperwork, is that the SBA wants to ensure that you truly cannot afford to repay the debt in full.  What types of things will indicate that you perhaps have the ability to repay the debt in full?  A high paying job, a home with lots of equity, liquid assets, or assets that could be sold to raise cash are all “red flags” that could result in a rejection of a settlement offer.

 

Here are some “Do’s” and “Don’ts”:

 

-          DO fully and accurately disclose all income and assets.  Getting caught lying could result in further litigation.

-          DO make sure that you fully complete all forms, and provide all documentation requested.

-          DO respond to calls and letters in a timely fashion.

-          DON’T believe people that promise that you can settle your debt and keep your business.  The SBA rarely allows such an arrangement.  Such a feat can usually only be accomplished through deceptive practices.

-          DON’T commit to a settlement that you cannot honor.  If you fail to come through on a commitment to pay, the SBA could seek judgments, wage garnishment, or foreclosure.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

 

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How To Qualify For An SBA Loan Deferment of Modification

  

In this rough economy, the SBA has encouraged lenders to be as flexible as possible in order to help small business owners make it through to the other side.  In most cases, the flexibility will come in the form of a loan deferment.  While the SBA wants lenders to be flexible, the lender still needs to have reason to believe that your business will survive if relief is granted.

 

There are a few key factors that your lender will look at when determining whether you qualify for a deferment:

 

1)      Cash Flow.  When you think of cash flow, think of the 3 bears.  Can’t have to little (they’ll think things are so bad you are beyond help), can’t have too much (they think you are crying wolf and don’t really need it).  Cash flow needs to be juuuuust right.  In other words, you need to demonstrate that you can’t make your regular payments, yet have enough cash flow to make payments under the terms of your deferment.

 

2)      Repayment History  The idea here is that your lender wants to help borrowers who have been making an honest effort.  Even if you can’t make your full payment, have you at least been paying what you could?  Were you making regular, on-time payments when times were good?  Your lenders wants to help a business that has shown that its committed to honoring their debt commitment.  The repayment history is a great indication of your commitment.

 

3)      Responsiveness If your lender asks for documentation within 2 weeks, that means you should get it to them within 2 weeks.  Seems simple enough, right?  You’d not believe the number of borrowers who lollygag when it comes to getting their lender a complete deferment application package.  In many banks, once the deadline for documentation passes, you will be automatically declined for a deferment, and be scheduled for liquidation.  In other words, they will shut you down and sell your stuff.

 

4)      Collateral In most cases, the collateral situation was established at loan inception.  However, it will factor into how aggressive your lender will get, and how quickly it will happen.  If your $150,000 loan is secured with $10,000 worth of equipment, a lender will be more apt to try and help you out since they are otherwise looking at a sizable loss.  On the flip side, if the lender has collateral that is worth more than you owe, they may be quick to move into liquidation mode if they don’t believe your business has a chance to succeed.  In his situation it is vitally important for you to be ultra-responsive to your lender.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

 

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SBA Loan Default: Personal Judgments – What Can Happen?

 

(Note: the author is not an attorney, and this article should not be construed as legal advice.  Readers are strongly encourage to speak with a qualified attorney for all legal matters)

 

Quite often, we get calls from borrowers in a panic.  They got a letter from the banks lawyer, and the bank is seeking a personal judgment against them.  People don’t always know exactly what that means, but they know it ain’t good.

 

While we are not attorneys, we have seen enough personal judgments to have a firm understanding of what a judgment means and what borrowers stand to lose personally, so here’s the deal:

 

When a personal judgment is granted against you, what’s basically happened is that your bank went to court with all the loan documents that you signed and say “Hey judge, Mr. Smith promised to make payments according to the terms listed on this piece of paper.  He has violated the terms of our agreement, and we would like you to give us permission to take his stuff and sell it so we can get our money back.”  At that point, the court will give you the chance to respond to the banks allegations.  If for example, they got the wrong guy, or you never actually signed the documents, you could go to court and tell them that the banks allegations are false.  In most cases, borrowers never respond, and the court will grant a default judgment, meaning no defense was put forth so the judgment was granted.

 

Now that the bank gets its judgment, they have the legal right to go after your personal property and earning.  Typically, the most popular asset that a bank will try to go after is your home.  Even though it probably won’t result in a foreclosure, the idea of a judgment lien is to attach it to a property.  If the owner ever tries to sell the property, ownership cannot be legally transferred without the judgment lien being satisfied.  The whole idea is that the property owner can’t skip out on a debt, then walk away from the sale of a home with cash.

 

Another way that a lender can enforce a lien is through wage garnishment.  If a lender knows that a borrower has a job, they can seek to get payments taken out of the borrower’s paycheck.

 

While a judgment may not result in losing property, it is likely to show up on your personal credit report.  That means any time you apply for credit in the future, potential lenders will see that you borrowed money from another lender and didn’t pay it back.  For most lenders, this means an automatic decline.

 

Overall, it’s always a smart idea to try and settle with your lender so they don’t resort to a judgment.  If you are willing to cooperate with a lender, they won’t seek a judgment against you unless a deal can’t be worked out.  Working with a firm like Distressed loan Advisors can help you settle the debt and avoid a judgment, so if you are behind on debt, contact us today before its too late for us to help you!

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Default: Common Questions From Clients 

 

I paid too much for my business.  Will my lender/SBA reduce the principal amount I owe so I can afford the payments?

 

Sadly, no.  For 7a loans (which is how most business acquisitions are financed) the only way that the SBA will consider a settlement is after the businesses ceases operations and all business assets have been liquidated (note: 504 loans can be settled even if the business is still open).  Some people will seek to sell their assets to a related party (friend/relative/business partner), then buy them back later (see our article on Ethics and Legality of an Asset Dump Buy Back).  Unless this is explicitly disclosed and approved by the lender/SBA, it could be construed as fraudulent.

 

How much will the SBA be willing to settle for?

 

There is no set formula.  Different banks have different policies regarding how much they are willing to settle for.  Some don’t have set rules, others take a hard stance and pick an arbitrary percentage regardless of your personal situation.  Very often, how much the SBA is willing to approve will depend on the personal financial situation of the guarantor.

 

The SBA guaranteed 75% of the loan to my lender.  That means as a guarantor, I only owe 25% of the balance, right?

 

Unfortunately, no, you are still responsible for the entire balance. The SBA guarantee has no impact on how much you legally owe.  The guarantee ensures that the lender’s financial loss is minimized, but it does not distinguish the debt owed by the borrower or guarantor.

 

Do I need a lawyer to settle my SBA debt?

 

No.  Settling SBA debt is largely a financial matter. While we’d recommend having an attorney review legal documents, the fact is that SBA settlements often involve no signing of any agreements at all.  When engaging someone to represent you, you need someone with a through knowledge of the SBA process (many lawyer’s don’t), and an understanding of the philosophy behind SBA settlement policies.

 

Will the SBA foreclose on my home?

 

If there is equity in your home, and you are unable to reach a settlement, foreclosure is a possibility.  The best way to avoid such a situation is to get the debt settle prior to the SBA or your lender ever starting the foreclosure process. Most lenders prefer not to foreclose, and are willing to work out payment arrangements to keep you in your home.

 

If I want to settle my debt, I sell my business assets and turn over the cash to my lender, right?

 

Sorry, selling the business assets is just the liquidation phase.  After the cash from the sale of the assets is applied to the principal balance, only then does the settlement negotiations begin.  Settlement discussions can only be had one the business ceases operations, and all business assets have been liquidated (Note: some exceptions do exist).

 

Why are your fees lower than other SBA workout firms?

 

I believe my fees are appropriate for the services I provide.  While I’m in business for profit, I also feel responsible for the well being of my clients, which means doing the right thing and charging reasonable fees for my services.  Rather than charge no fee up front and a whopping percentage on the back end, I charge a reasonable up front fee for time spent, and take a reasonable percentage upon a successful settlement.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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Top 4 Mistakes That Borrowers Make Following SBA Loan Default

 

1)      Run and Hide – If you want to have any hope to save your business, the worst thing you can possibly do is stick your head in the sand and ignore the phone calls and letters from your lender.  It’s certainly unpleasant to deal with people whose job it is to shut you down, but avoiding them isn’t going to make it any better.  If you don’t want to deal directly with the bank, engage an SBA workout expert to represent you.

2)      Start Selling Equipment – Hey, this ship’s going down, so why not clear some cash while you can, right?  Here’s why:  Your lender most likely has a claim to your business assets, so if you sell the business assets without the banks blessing, you open yourself up to fraud allegations from your lender.  The guy you sold the stuff to won’t be too happy either when the bank shows up and yanks the equipment from him.

3)      Claim Doom and Gloom – Many borrowers think that if they can convince their banker that things are truly awful with no hope of recovery, the lender will take pity and offer them assistance.  Not true.  If a lender thinks your business has no chance to survive, they will move quickly to foreclose and get judgments granted against you and your business.  The lesson here is to just tell like it is….don’t over-sell your need for assistance, but at the same time don’t sugar coat it and make promises you can’t keep.  Just tell the truth.

4)      Make Deals With The Devil – Some people are so frantic about the possibility of losing their business, they’ll sign up with the first workout firm that is willing to promise them the moon and the sun and the stars.  Watch out for wolves in sheep’s clothing.  Nobody can legally convince the SBA to lower your loan amount while letting you stay in business and hold on to ALL of your business assets (only bankruptcy courts can do that).  If someone promises you a deal that sounds too good to be true….well, you know the rest.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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Short Sales, Foreclosures and SBA Loan Default

 

For thousands of business owners, the failure of a business means more than just closing the doors and walking away.  It also means dealing with the emotional anguish of having a piece of real estate forcibly taken from them by their lender.  For many people, this is a confusing and stressful process.  The purpose of this article is to explain how short sales work, what’s involved, and factors that play into a successful short sale.

 

First, let’s discuss what a short sale is.  Simply put, a short sale is when a piece of real estate sells for less than the amount owed to the bank.  This has become quite common in the residential sector, and has also become more common on commercial properties.  To further drive home the meaning of “short sale”, let’s look at an example:

 

Bob’s Widget Factory Inc owns a piece of commercial real estate that they purchased in 2008 for $1,000,000.  In order to buy the real estate, Bob took a $900,000 loan.  Before Bob could blink, the economy went south and the business went belly up.  In order to make good on his obligation despite his failed venture, Bob decides to put his building up for sale.  To his dismay, the local real estate market has weakened, and the best offer he has received for the building is $700,000.  Bob has found himself in a classic short sale situation.  He owes $900,000, but the most the building will sell for $700,000,  Now what?

 

In order for any short sale to be successful, first and foremost, ALL the lien holders must agree to release their liens.  This means not just the first lien holder, but the 2nd, 3rd, 4th etc.  Why is this the case?  Here’s why:  Because a short sale is a voluntary sale, therefore all the lien holders must agree.  Contrast this with a foreclosure, which is a forced sale.  In these cases, not all the lien holders need to agree.  In the example above, if the 1st lien holder were to foreclose, all the remaining lien holders would get “wiped out”, which means all the remaining lien holders lose their lien on the property.

 

Some other factors to consider when contemplating a short sale:

 

-          A successful short sale typically does not mean you are off the hook for the deficiency (ie the money you still owe to the bank), so a settlement (OIC) will be needed.

-          The OIC cannot be done in conjunction with the sale of the real estate.  The settlement comes only after all business assets have been liquidated.

-          The more liens there are on a property, the more difficult a short sale is to accomplish.

-          Some lenders will allow a portion of the proceeds to go to more junior lien holders, while others who are in 1st position will foreclosure instead of sharing the proceeds from a short sale with junior lien holders.

 

Overall, short sales have become a way of life in today’s economy.  No matter what side of the deal you are on, be prepared for a transaction that will take longer and cause more headaches than “regular” transactions due the fact that there are typically more players involved.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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Repercussions of an SBA Loan Default

When you took that SBA loan a few years back, all those papers you signed sure did have a lot of words on them, didn’t they?  If you are like most people, you signed them without thinking too much about what a worst case scenario would be if you couldn’t pay that loan back. 

Fast forward a few years of blood, sweat, and tears.  You’ve done everything you could possibly think of to get things back on track.  You’ve cut expenses.  You’ve let your staff go.  You stopped paying yourself.  You ask the bank for a loan modification.  Despite your best efforts, there is simply just not enough money to pay the bills, and you fall deeper into the hole every month. 

Now that it has become apparent that you are going to default on your SBA loan, a question begins to plague you:  WHAT ARE THEY GOING TO DO TO ME AND MY BUSINESS?

Here is a list of legal remedies that banks have in their bag of tricks:

Foreclosure - If you have pledged real estate or business assets of collateral, banks can initiate a foreclosure (sometimes called a writ of possession for business assets).  How long that would take depends on the state, but the end result is that the bank takes possession of your property, and sells it to the highest bidder.  The proceeds from the sale of your stuff will be applied to your loan balance.

Of note, a possible alternative to foreclosure is to work with the bank to perform a short sale on your real estate.  In a nutshell, a short sale means that you sell the real estate for less than you owe.  It won’t get you off the hook for the remaining balance due after the sale is complete, but it could fetch a higher price than a foreclosure sale, resulting in a lower deficiency amount.

Foreclosing on business assets is often done not because the assets have value, but instead as a way to shut a business down.  If you don’t have inventory, tables, chairs, a cash register, etc, then you can’t continue to operate.

Judgments – A judgment is a court recognizing the legal validity of a debt.  It declares to the world that John Q Public owes XYZ Bank Corp a sum of money.  This information typically will be reported on the credit report the person the judgment is granted against.  Once a judgment is granted, the party that the judgment is granted in favor of has the option of trying to collect on the judgment.  In other words, they can try to take your personal possessions, even if you didn’t originally pledge them.

Wage Garnishment – If you owe money and have a job where you have you get paid regularly, a lender can legally take a portion of every paycheck in order to offset debt that is owed.

Tax Refund Offset – If you default on an SBA loan, the US Treasury Dept can enroll you in the Treasury Offset Program.  Any tax refund you are entitled to receive in the future can be seized and applied to your debt.

The best way to avoid any of the above from happening to you is to be proactive about settling your debt.  The SBA has a process in place that allows guarantors to make a settlement offer (know and Offer In Compromise, or OIC).  By settling your debt now, you can avoid the financial consequences of foreclosure, judgments, wage garnishment, and tax refund offsets.  The longer you wait to settle, the harder it will be to do so.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Loan Default:  Is SBA Workout Consulting A Scam?

 Article that offers a rebuttal to the assertion that all consulting firms who claim that they can assist with SBA debt settlement are scammers.  Explains how to tell whether a consultant is legitimate or unsavory.

I got a call today from someone who seemed very interested in having my firm negotiate a settlement for their SBA loan.  About halfway through the conversation, the prospective client said to me “well, this all sounds great, but I have to be honest.  I talked with my attorney about your services, and he said it’s a scam”. 

Well, that’s pretty annoying.

I did my best to explain that the SBA does have a settlement process, and even sent the prospective client a copy of the SBA OIC form.  I went on to suggest that perhaps his attorney was not familiar with the SBA process, so he would not be in a position to know what’s possible when it comes to debt settlement.

That said, I can’t argue that there are some very shady characters out there who are posing as SBA Default Experts.  In an effort to help you determine who is legit, and who is not, here are some helpful tips and questions to ask:

-          Is the majority of their fee payable before you know whether the settlement was successful?

-          Does the strategy that is being pitched to you sound a little off?  I have a client who came to me after their original consultant advised them to sell their business to a friend so they’d qualify for a settlement, then to buy the business back once the settlement was complete.  I had another client who told me that they were told by another consulting company that they should just form a new corporation and keep running the business.

 -          Use the power of the internet.  By googling the name of the company and the people behind it, you can learn a lot, especially if you put the words “fraud” or “scam” after the names.

 -          Are claims being made that seem too good to be true?  Statements like “We guaranty we can settle your debt”, and “We have a 100% success rate” should set off red flags.

 -          Are you being pressured to sign up by scare tactics?  A consultant who gives you the hard sell may be trying to force you into handing over cash before you have time to think it over.

 It’s a shame that there are people out there who don’t have your best interest at heart, but then again, such traits are not limited to SBA consultants.  In every walk of life there are crooked players, including doctors, lawyers, teachers, or police.  It’s just too bad that people who are in such financial troubles have to worry about being ripped off when they can least afford it.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Default: What The SBA Guaranty Means To The Borrower

Lately, we’ve been hearing from a lot of upset business owners.  They are not upset because their business has closed or is struggling – they have come to terms with the economic downturn.  Instead, they are upset because they feel that they were misled by their lender when they first took their loan.  More specifically, borrowers tell us, they were led to believe that an SBA guaranteed loan meant that if they defaulted on the loan, the SBA would reimburse the bank (that part is true) and that the borrower would be able to walk away with no further obligation (that part is not true).

Just to set the record straight:  THE SBA GUARANTEE IS A GUARANTEE FOR THE LENDER ONLY.  IF YOU HAVE AN SBA LOAN AND YOU DEFAULT, YOU ARE RISKING LEGAL ACTION AGAINST YOU.

So if the guarantee is just for the lender, what’s the point of an SBA guaranteed loan?  Good question.  In theory, SBA loans are meant to provide funding to small businesses who do not qualify for conventional bank financing.  Since banks are concerned with making a bad loan (and losing money), the SBA offers to reimburse the bank for a portion (the percentage varies by program) of the loan in the event that the loan goes bad. 

More than once, borrowers come to us confused and angry, as they feel that when they were given the loan, their lender failed to mention that while the guarantee resulted in them being approved for a loan, the guarantee was worthless to the borrower in a default situation.

Now let’s be clear about this: We are NOT accusing lenders of being predatory or misleading.  Rather, the confusion about the guarantee is probably the result of poor communication.  The lender knows the deal, so when the borrower asks “So if I default, the government guarantees the loan?”, the lender says “Yes, that is correct”.  The borrower assumes they understand the deal, and the lender assumes the have sufficiently answered the inquiry.  In a case like this, it’s really just a matter of the borrower assuming that the SBA guarantee being the same thing as their rich uncle guaranteeing, when in fact this is not the case.

The only suggestion we can make to remedy this huge misconception is to have lenders put a statement in big bold letters on every SBA loan application similar to the one we wrote above: THE SBA GUARANTEE IS A GUARANTEE FOR THE LENDER ONLY.  IF YOU HAVE AN SBA LOAN AND YOU DEFAULT, YOU ARE RISKING LEGAL ACTION AGAINST YOU.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Default: Deferment vs Modification

(Distressed Loan Advisors offers expert advice about SBA loan modifications and the Offer In Compromise process, and can be reached at JasonTees.com)

If business has been tough lately, (and let's face it, if you were open in 2009, this applies to you) and you need some help, SBA lenders generally offer two varieties of help: deferments and modifications.

Deferment:  A loan deferment is typically more short term in nature than a modification.  Generally lasting for up to 12 months, a deferment can be viewed as a short term "band-aid" that allows a borrower to abstain from making full contractual payments.  Some lenders will allow full payment deferment (i.e. $0 payment), an interest only deferment, or some other reduced amount.  After the deferment period expires, you will be expected to resume regular contractual payments. The deferment is a "first line of defense" when it comes to SBA Loan Workouts, so unless your lender thinks that your problems are long term in nature, that's often the first form of relief you'll be offered.

Modification:  If a deferment is a "band-aid", then a modification can be considered to be "surgery".  The goal of a modification is to permanently change your loan terms in order to permanently reduce your monthly payment.   There are a few basic elements of a loan that could possible be changed: 

1) The Rate - While not impossible, a rate change is unlikely.  The main reason is that many SBA loans are sold to investors.  Since the investor agreed to buy the loan at a certain rate, an investor will rarely agree to a rate reduction.  Additionally, if a lender were to use risk-based pricing, lowering the rate on a defaulted loan would be out of the question.

2) The Term - Out of these 3, a lender is most likely to look at extending the term of your loan, thereby reducing the payment.  For example, if you have a 10 year loan, they might look at extending it to 15 or 20 years.

3) The Principal Balance -  Writing off principal is not an option if you want to keep your business open.  The SBA does have a settlement process, but in order to qualify, a business must cease operations and all business assets must be liquidated (some exceptions do exist).

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Loan Default:  Banks Are NOT Required To Accept a Settlement Offer

So your business is closed, all the business assets have been liquidated, and all that remains is a fairly substantial pile of debt.  Now what? One would think that the next logical step would be to submit an Offer In Compromise package (something this writer specializes in for clients) so the debt can be settled once and for all.

Not so fast.  Here’s the thing:

For those not familiar with the process, the Offer In Compromise (OIC) must be submitted through the lender.  When the lender submits the OIC to the SBA, the bank is asked whether they recommend that the offer be approved.  In many cases, banks don’t want to settle, which means the OIC is dead in the water before it even makes it over to the SBA.

Why would a bank not want to settle?  Perhaps they think a borrower was fraudulent.  Or they think a borrower isn’t making a strong enough offer.  Or they don’t want to bother with the paperwork necessary to submit the OIC to the SBA (this alone is great reason to have a workout professional prepare an OIC package, and deliver it on a silver platter to the bank).  Some lenders simply have a “no settlement” policy for certain loan types or loan amounts.  No matter that the reason, the bottom line is that the OIC is not something lenders are required to consider.

So how can a borrower improve their chances of their lender supporting an OIC?

 It sounds simple, but many borrowers are elusive and hard to track down because they don’t want to deal with the stresses of talking to collections people.  If you are intimidated by collections people, then find someone (like us) to represent you.  Not only will a workout professional deal with the wrath of the collections people, they’ll make sure you don’t get steamrolled with unreasonable demands. 

If you submit an OIC, make sure you are offering full disclosure in terms of your assets and your income.  If you get caught leaving a major asset off your PFS (yes, there are ways to check), your chances of having a settlement accepted will fall dramatically.

Another way to help your chances of having an OIC accepted is to fully cooperate in the liquidation of your business assets.  Simple things like providing access for appraisers and returning phone calls to schedule appraisals can help you tremendously in the long run.  In short, when you make your lenders life easy, there’s a chance they’ll return the favor when its OIC time.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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How To Qualify For An SBA Loan Deferment

 

(Distressed Loan Advisors offers expert advice about SBA loan modifications and the Offer In Compromise process, and can be reached at JasonTees.com)

  

In this rough economy, the SBA has encouraged lenders to be as flexible as possible in order to help small business owners make it through to the other side.  In most cases, the flexibility will come in the form of a loan deferment.  While the SBA wants lenders to be flexible, the lender still needs to have reason to believe that your business will survive if relief is granted.

 

There are a few key factors that your lender will look at when determining whether you qualify for a deferment:

 

1)      Cash Flow.  When you think of cash flow, think of the 3 bears.  Can’t have to little (they’ll think things are so bad you are beyond help), can’t have too much (they think you are crying wolf and don’t really need it).  Cash flow needs to be juuuuust right.  In other words, you need to demonstrate that you can’t make your regular payments, yet have enough cash flow to make payments under the terms of your deferment.

 

2)      Repayment History  The idea here is that your lender wants to help borrowers who have been making an honest effort.  Even if you can’t make your full payment, have you at least been paying what you could?  Were you making regular, on-time payments when times were good?  Your lenders wants to help a business that has shown that its committed to honoring their debt commitment.  The repayment history is a great indication of your commitment.

 

3)      Responsiveness If your lender asks for documentation within 2 weeks, that means you should get it to them within 2 weeks.  Seems simple enough, right?  You’d not believe the number of borrowers who lollygag when it comes to getting their lender a complete deferment application package.  In many banks, once the deadline for documentation passes, you will be automatically declined for a deferment, and be scheduled for liquidation.  In other words, they will shut you down and sell your stuff.

 

4)      Collateral In most cases, the collateral situation was established at loan inception.  However, it will factor into how aggressive your lender will get, and how quickly it will happen.  If your $150,000 loan is secured with $10,000 worth of equipment, a lender will be more apt to try and help you out since they are otherwise looking at a sizable loss.  On the flip side, if the lender has collateral that is worth more than you owe, they may be quick to move into liquidation mode if they don’t believe your business has a chance to succeed.  In his situation it is vitally important for you to be ultra-responsive to your lender.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

 

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Do You Need A Lawyer To Negotiate Or Settle Your SBA Loan?

(Distressed Loan Advisors offers expert advice about SBA loan modifications and the Offer In Compromise process, and can be reached at JasonTees.com)

Absolutely Not!  There is no law that you have to pay an attorney hundreds of dollars per hour to negotiate your SBA debt.  That said, you do want to be represented by a firm (law firm or not) with experience dealing with SBA, who knows its policies and procedures inside and out.

Many borrowers think that lawyers have the expertise to negotiate debt, and while some do, many do not.  We’ve had many attorneys admit to us that they are not good with numbers, which is why they got into law in the first place!  While no lawyer will admit that to a client, having a lawyer who not adept at financial statement analysis and has no knowledge of the SBA process could result in a fairly large bill and no success with settling or modifying your debt.

The key to choosing the right firm to assist with your SBA debt problems is to choose a firm that:

1)      Has extensive experience dealing with the SBA and their Offer In Compromise process.

2)      Will charge you a fair fee.  If they charge you more than 10% of the amount they saved you, that’s too much. 

3)      Will not charge large upfront fees.  The largest part of the fee should be only due if your debt is successfully settled.

4)      Makes you feel comfortable.  Don’t let salesman scare you into paying their fees.  While it is a serious issue, a good SBA settlement firm will be able to answer all your questions, while also being able to give you a realistic idea of what you are facing.  If someone is giving you the “doom and gloom” scenario, ask yourself if they are looking out for you, or simple looking to make a sale.

So when do I strongly suggest that my clients consult with an attorney?  Any time they are asked to sign legal documents, or if the bank has initiated legal action and the client is seeking advice regarding the suit.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Offer In Compromise:  How To Close A Business

 

If you are reading this blog and thinking to yourself “great, you can help me settle my debt, but how do I close my store?”, this is the article for you.

 

Just like opening a business, closing a business requires a plan.  The difference between closing with a plan and closing without a plan is similar to the difference between jumping out of an airplane with or without a parachute:  you are going down either way, but careful planning can be the difference between crashing in a fiery heap versus gliding to a smooth landing.

 

Some tips to avoid that fiery crash:

 

Don’t Be A Ghost – When business is going poorly, the tendency is to want to run and hide, especially from your lender.  Don’t.  Ignoring your banker is the surest way to tick off her off.  Having a banker who likes you is a valuable asset.  Having a banker who dislikes you can make settlement discussions difficult or impossible.  Return calls, letters, and emails.  It could mean the difference between settling successfully and having a legal judgment filed against you.

 

Save Your Pennies For That Upcoming Rainy Day – Once the business is closed and the business assets have been liquidated, its time to make your settlement offer.  You can only make a settlement offer if you have something to offer, so once you know for sure that you’ll be closing and seeking a settlement, start stashing away cash and looking for ways to raise cash to make an offer.  Friends, family, home equity loans, and credit cards are typical sources of cash.

 

Get Your Ducks In A Row – The time to decide what your settlement strategy will be should be well in advance of making an actual offer.  If you are working with a professional like DLA, you can determine what the best strategy might be, and what’s most likely to be approved by your lender and the SBA.  There is nothing more disappointing to a borrower when they do everything that the bank asks, only to have their settlement offer declined because they didn’t know the parameters of the OIC process going in, and didn’t have a backup plan.

 

Ask Permission Before Having A Closing Sale – While the idea of slashing prices to raise cash may sound good in theory, make sure your lender is ok with it.  If they think you gave away the store (and their collateral), you may get an earful from your banker.  Even worse, you may be in a position to make up the difference between what you sold the items for and what the bank thinks they were really worth.

 

Settle With Whoever You Can – Many vendors will settle with you if you can make a cash offer.  By tying up these loose ends, you may be able to save the headache of collection calls and personal judgments.  

 

Play Nice With Your Landlord – Next to your SBA lender, your landlord may be taking the biggest hit by you going under, as they stand to lose years and years of rent that they were expecting.  In order to minimize the damage, try to find a qualified tenant for the space.  When you eventually move out, leave the space “broom clean” so the landlord isn’t stuck cleaning up your mess.

 

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

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SBA Default:  Is an OIC required for your SBA lender to release a lien on your home?

 

In a word: sometimes.  There are cases when an OIC is required, and times when an OIC is not needed.  So what does it depend on?  In most cases, it depends on whether or not you are personally liable to the SBA loan.

 

When An OIC Is Required

 

If you had a business that closed, and all the assets have been liquidated, you should in theory be eligible for an OIC (some other conditions must be present).  If you signed a personal guarantee and want to be released from that guarantee, the SBA requires that you submit an OIC, which requires full financial disclosure.  If you pledged your home as collateral for your SBA loan, then you would ask for the lien release as part of an Offer In Compromise.  In this case, the OIC is required because are still personally liable for the loan, therefore how strong or weak you are financially does matter.

 

When An OIC Is Not Required

 

If you did not personally guarantee your SBA loan (highly unlikely), or if you filed for Chapter 7 personal bankruptcy (much more common) and were discharged, then you are not personally responsible for repayment of the SBA loan.  That said, a bankruptcy discharge does NOT result in the release of liens on real estate.  The only way for a lien release to happen is for the lender to agree to a lien release.

 

Most lenders will agree to consider a lien release, but in a case when you are not personally liable, your lender should not be requiring you to submit an OIC (and the associated paperwork).  Why?  Since you are not personally liable, your personal financial situation should not matter.  All that should matter is how much equity is in the home.  The lender should be making a business decision: is the offer you are making in exchange for the lien release going to result in the same amount of cash that they would expect in a foreclosure scenario?  

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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SBA Default – Why Settle?

 

So your dream of having a successful business have perished (for now at least).  You’ve made the difficult decision to close your doors for good, as your losses have mounted, month after month.  After much soul searching, you have conferred with business partners, advisors, and your family, finally reaching the conclusion that the current version of your business is a far cry from what you imagined it would be.  Bottom line: It just ain’t worth it any more.

 

Unfortunately, closing your doors is only one small part of this process.  When you took that business loan to finance your business, you signed a personal guaranty.  That guaranty states unequivocally that you will personally repay the loan in the event that the business cannot.  Of course, that business was your sole source of income, so there is no way you can continue to make payments on it. 

 

So now what?

 

Once the business is closed, and all the business assets are sold, it’s time to think about settling your debt.  In the present economy, more than ever , banks are willing to settle outstanding debt.  Why?  Because it costs money to sue you.  It costs money to sic a collection agent on you.  It costs money to collect on a personal judgment.  It costs money to foreclose on you.  In other words, if you come to the table, they are willing to talk.

 

So settling debt is great for banks, but what’s in it for you?

1)      No Personal Judgments – When a personal judgment is granted against you, this means that whoever the judgment is in favor of has the legal right to take your personal assets and sell them.  In most cases, if the debt is settled right after business closure, the bank will not seek a personal judgment against you.

2)      No Need For Bankruptcy – If you can work out a deal with a bank, you won’t need to worry about the bank coming after you.  Remember, if you go the BK route, it will remain on your credit report for years, and you will always need to answer “yes” on any credit application, job application, or even apartment application for the rest of your life. BK is the right answer for some, but not a necessity for everyone.  Settling debt shows that while you did not fulfill the obligation in full, you didn’t simply walk away either.

3)      Move On With Your Life – As many small business owners can attest, the psychological burden of wondering if or when the banks lawyers will come calling is just as bad as whatever might actually happen.  Settling your debt can put the potential of future litigation to rest, so you can move on to your next venture.

4)      Prevent Foreclosure – If you pledged your home as collateral for your business loan, you run the risk of foreclosure if the bank feels that there is sufficient equity in your home to do so.  Even if there is no equity in your home, the bank can simply wait until you go to sell it, at which point you will need to negotiate a release of the lien.  (Note: there’s no reason that you can’t negotiate the release of a lien on your home sooner than later).

5)      Keep Your Home Free of Liens – Even if you didn’t pledge your home originally, once a lender obtains a judgment against you, they can seek to have a judgment lien place on the home.  Again, this would mean that the lien would need to be satisfied if you ever try to sell your home.

Distressed Loan Advisors (http://www.JasonTees.com) offers expert advice about dealing with SBA Loan Default and Forgiveness, and can be reached at 1-877-436-4533 or loanhelp@jasontees.com.

 

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