Defaulting on any type of business loan can feel like a migraine for business owners. The truth of the matter is while defaulting is a serious matter, the SBA does have a process in place for situations when borrowers cannot afford to repay their debt in full.. The first step is knowing what options are available to you to fix your SBA loan default problem. The second step is seeking expert help. The right expert will help you navigate the seemingly difficult SBA loan default process.
Don’t Upset the Lender, Maintain a Good Attitude
When you accepted the SBA loan, you likely provided the lender with a personal guarantee. While I totally understand that defaulting on a loan can cause a great deal of mental stress, you made a promise to the lender to repay the debt from personal assets, so simply walking away isn’t a viable option. That’s why it’s important to keep a good attitude throughout the SBA loan default process. The lender put their trust in you to pay back the loan so maintaining a good attitude and being cooperative could work in your favor. While being cooperative doesn’t alone mean the lender will be willing to settle, having a good repore with your lender can make the process a lot easier.
An SBA Offer In Compromise is Where You Should Start
Submitting an SBA Offer in Compromise (OIC) package is going to be the key l to getting the overall balance owed reduced (if it’s at all possible). All borrowers who are going through an SBA loan default should complete and submit the OIC package immediately after a default happens. Waiting too long or dodging the lender will only make the consequences worse and ruin your chances of settling.
What Should Be Included in the Offer in Compromise Package
Here’s a list of what should be included in the SBA Offer in Compromise Package (in conjunction with the form):
–A letter from the borrower (i.e. you) and/or guarantor explaining the financial hardship.
—-If it’s a medical emergency, you must include a statement from a doctor regarding your health.
—-If you’ve recently become unemployed, you’ll need to provide proof of unemployment.
–SBA Form 1150 (Offer in Compromise form) and statement identifying where the funds will come from to make the proposed (reduced) payment amount.
–Borrower’s Consent to Verify Information and 3rd Party Authorization (must be signed by all borrowers and guarantors).
–SBA Form 770 (Financial Statement of Debtor Form).
–Bank and Investment Account Statements for the last two months.
–Two copies of your most recent pay stubs (social security recipients should provide recent SSA/SSI award letter or check stubs).
–Any additional proof the borrower or guarantor has to verify their income.
–Federal Income Tax Returns for the last 2 years.
–Current Interim Financial Statement (last 90 days).
–A Copy of the Dissolution of Business letter (if applicable).
There are a few other documents that must be included in the Offer in Compromise Package. However, these are the most important. You can consult with an expert to learn more about what else should be included.
What an Expert Can Do to Help with an SBA Loan Default
An expert will help you determine if submitting an Offer in Compromise package is the right way to go. If it is determined that an OIC will work best for you, an SBA loan default expert will help you compile an OIC package and work with the SBA (to get everything settled) on your behalf. In some cases, it may be too late to submit an OIC. If that’s the case, bankruptcy may be the only answer. Again, the only way to know is to speak with an SBA loan default expert.
How to Choose the Best SBA Loan Default Expert
The best experts will have extensive experience with SBA Offer In Compromise process (it’s not enough to simply have experience with debt settlements in general – SBA Offer In Compromise is a completely different animal) . They will also be able to give you thorough examples of SBA loan default cases they’ve worked on in the past. Not every case is the same, each situation is unique. This is why it’s critical that you work with someone who has experience helping a number of people through this process.
Don’t Go At It Alone, An Expert Will Help You Avoid Mistakes
Some people believe they can get through the SBA loan default process alone. They try to complete the OIC alone, without consulting with an expert. Working with an expert means you will have an advocate at your side. This person will be there to answer all of your questions and help you get the best results. They will also help you complete the OIC correctly. Rushing through the OIC and not having a clear understanding of how to move through the SBA loan default process can be costly.
The Takeaway
Handling an SBA loan default the right way consists of knowing which steps to take to settle with the lender. Working with an expert who has experience helping business owners settle or have their SBA loan forgiven is the key to your success in this process. Doing it the right way will enable you to borrow money for your business again in the future (after your financial situation improves). A business will always need capital to sustain itself. So when you default on a loan it’s always wise to settle so you will be able to get money from a lender again when necessary.
Rebuild Your Business Credit
Rebuilding your business credit after an SBA loan default will help you re-establish yourself as a creditworthy business borrower. It will help you qualify for other types of financing such as stated business lines of credit, merchant cash advances, ACH loans, etc.
