Expert: Jason Milleisen - 3/28/2011

Question
QUESTION: Thre are 3 partners that guaranteed a SBA loan.  The bank is only interested in pursing the funds from me.  I have submitted 2 previous OIC and both been rejected.  I want to submit one more OIC and would like your expertise as to what to say or do so they will accept this offer.  My final offer would be 50% of the remaining balance including late fees and lawyers fees.

ANSWER: Hi Patricia,

Thanks for your question.  With regards to the SBA OIC, the first point I'd make is that even though there are 3 partners, as far as your bank and the SBA are concerned, each of you is 100% responsible for the entire amount of the debt.  Business owners often assume that if they are one of three partners, that they are only responsible for 1/3rd of the debt, which is not the case.  Banks will often expend their resources to pursue the "stronger" guarantor(s) in hopes of achieving the best possible recovery, but the personal guarantee you signed likely states that each guarantor is 100% responsible for repayment of the debt in the event of SBA loan default.

The key to a successful SBA OIC is to submit a settlement offer that is reflective of your personal situation.  If your two previous offers have been rejected, it's possible that either your bank or the SBA feels that you can afford more.  You should review your personal financial statement (SBA Form 770 that should accompany your offer), and personal tax returns to see if there is any information on those documents that indicate you have resources above and beyond your offer.

In some cases, banks have arbitrary rules when it comes to settlements, which can make it more difficult. For example, some banks have a "no settlement" policy.  Others will only settle for a fixed percentage, regardless of what your financials indicate that you can afford.  Banks who take this approach can be very difficult to settle with unless you have outside resources (like friends and family) that you can tap into.

Keep in mind that while the SBA has certain guidelines that they have when evaluating the OIC, your bank is not obligated to accept an offer that the SBA would accept.  Since the bank and the SBA share the loan exposure, both must accept the offer in order achieve SBA loan forgiveness, and the SBA cannot "force" the bank to accept the offer.

Without seeing your financial information, I can't give you a specific dollar amount that you should offer, but if you keep the points made above in mind when formulating your offer, you'll give yourself a better chance at success.

Best of luck with it!

Regards,
Jason Milleisen
Distressed Loan Advisors



---------- FOLLOW-UP ----------

QUESTION: Jason, Thank you for your suggestions.  I will use what you said in my OIC offer.  I have another question.  I am not behind in any of my current bills or mortgage, but because of the business, I have a lot of debt.  I was going to state in the OIC offer that I am getting the funds through a loan and I will have to pay the 1 position lien holder on my house to get the money and make the payment.  I  also was going to tell them(SBA/Bank) that if they reject this offer, then they will be forcing me to file bankruptcy to prevent them foreclosing on my house.  Is that a good or bad idea.  It is the truth, but I don't want to make them fell I am backing them into a corner.

Thank you,

Patricia

Answer
Hi Patricia,

The SBA always wants to know where the funds for a settlement are coming from, so sharing the details of where the funds are coming from is a good idea.  The fact that you are current on all your other obligations could work against you, as it indicates to the lender that you have made their loan your lowest priority, a fact that lenders never like.

With regards to stating that you'll file for bankruptcy if the settlement is not approved, this is a statement that many borrowers make when submitting an OIC, so while I don't believe it will hurt you to mention that, don't expect it to sway their decision.  Also, filing for bankruptcy doesn't always mean you will be able to save your home from foreclosure.  I'd strongly suggest that you speak with an attorney in your area so you can understand all aspects of a bankruptcy filing.

Regards,
Jason Milleisen
Distressed Loan Advisors
www.JasonTees.com