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Business Debt/SBA loan workout (offer in compromise)

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Expert: - 5/13/2010


Question
Hello there,

My current situation is that I have just started escrow with a short sale that I am doing on my two buildings. I have a first and second loan and the second is backed by the SBA. After selling the buildings, I will have about a $600,000 deficiency that I will owe the SBA. I am not looking to walk away from the debt but looking to offer a lower amount.
As I am doing my research, I have found 2 companies that are SBA consultants that deal with loan workouts or offer in compromise but I am still not sure whether they would be best or a lawyer would be best.
Is it likely that a lawyer can workout a good settlement? These consultants are saying that they can reduce the deficiency amount up to 95%. Too good to be true? What are the SBA trends today?

I appreciate your time in reading this. If this is not your area of expertise, would you be able to refer me to one that is? I am looking for someone that is familiar with SBA practices and processes.

Answer
Susie,
I need to be careful in my response, since I am a volunteer with SCORE and they are very closely associated with the SBA.  I know that the SBA guarantee is such that there should be little left that is not covered; however, the bank that did the financing might be pushing a little.  I also know that the covered portion of the SBA loans was extended based on the “Stimulus package” so I don’t know if the bank is playing hardball or not.
There are too many unknowns in your situation to give you a sure-fire answer.  I know that the default rate varies by geography, industry, and other factors.  I don’t think that dropping down to 95% deficiency is likely, and I’ll bet you that they won’t out that in writing!  However, I do think that 75% to 85% should not be a problem, based on the SBA guarantee.  

Before you go spend more money on this, let me suggest two websites:
The first is a “social networking” site for entrepreneurs run by SCORE, the counselors for the SBA:
http://www.scorecommunity.org/
The second is the actual website for SCORE:
http://www.score.org/index.html

The social networking site is more likely to have lawyers and consultants as members that you can hook up with, or even other entrepreneurs that have been through what you have and can offer advice.  The other site is the non-profit group of counselors that work with the SBA, and you can find someone in your area (or close) by plugging in your ZIP code in the box on the upper left side.  

Best of luck,
Michael

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Michael Fay

Expertise

My focus and specialty is in credit, so that the risk of the debt itself is minimized. This means understanding it, predicting it, and helping to correct it. Having worked in contracts & credit, I have also worked with all of the related documents such as Guarantees (personal and corporate), and Security Agreements (aka UCC’s or “liens” – but I caution you in using those interchangeably).

Experience

I have a broad background with more than 15 years in the credit industry. Ten years with Dun and Bradstreet, first as a field reporter creating reports, then in customer service, finally I served as the credit manager designing risk models for many national and international customers through D&B’s Outsourcing function. Five years with another publicly traded firm where I created the credit department and then served as credit manager for North America. At both companies we used both business and consumer data. You probably know that both business and personal credit have scores; what you might not know is how many different types of scores there are. I am familiar with and have used many different scores in each. Also be aware that each credit type (business & personal) is unique with different processes and different time frames. I have served on the board of directors for companies in many states and still serve in some capacity in a few. I contribute to credit publications and work with the non-profit arm of the SBA called SCORE.

Organizations
ACA International * NACM * Credit Risk Managers * SCORE (SBA)- Counselors to America’s Small Business * Payment Card Industry Network * PaymentSource.com * D&B Alumni * Psi Chi, National Honor Society for Psychologists

Education/Credentials
BIS in Business and Psychology, University of Minnesota * MBA is still in progress (on-line)

Awards and Honors
State of Colorado - State finals in Accounting and Advanced Accounting. * D&B Leadership Winner (3 times) * D&B Leadership Finalist (3 times) *

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