Who rejected your offer in compromise for a defaulted SBA guaranteed loan workout?

This is a very important question.  Many small business owners call me, frustrated that the bank will not process their offer to workout their defaulted SBA guaranteed loan.  Further, there are times when I am called  by borrowers with the resulting rejection received from the bank and wondering what they should do next.

This is a problem as it is frequently clear  that the banks act out their own interpretation of the rules of the game. It is apparent that the requirement to ‘exhaust their legal remedies’ in liquidating the collateral, means many different things to the various banks and thus borrowers receive many different creative  responses from the banks and their attorneys.

More unfortunately, there is no hand book outlining the rules of working out defaulted SBA guaranteed loans.  Therefor it is hard to know exactly what to do and how to do it.  No one tells you what works and what does not work, and so many of the banks apply their own spin to the process, interpreting the rules as they believe they should be, thus there are no predictable and reliable responses and expectations we can rely on.

Allow me to enlighten you.  If you have received a rejection from the bank on your personal guaranty workout proposal and NOT from the SBA you are on the wrong track.

It’s the banks job to liquidate the collateral, and here they may exercise certain levels of discretion, accepting or rejecting based on value received. However, once this is accomplished, the workout of the personal guaranty is subject to the  banks analysis prior to the SBA decision making process .

Most of the time the Offer in Compromise goes right over to the SBA, Sometimes the bank makes an effort to collect on it prior to the submission to the SBA. 

The ojective is to gteb it over to the SBA with the banks blessing. This does not always occur.

The real issue is what to do if the bank fails to do this.   The answer is based on a case by case situation, thus there is no universal way to show them the way, and correct this problem, but suffice to say this is the challenge.

Three easy ways to know the bank is not passing the baton over to the SBA, therefore short circuiting your workout opportunity.

1. You receive an answer to your workout request quickly, usually a rejection,  from the bank, sometimes in two weeks or less.

2. It is not on SBA stationary.  The response is either verbal, on the banks stationary, or relayed through their law firm.

3. The bank does not provide  you with the SBA Offer in Compromise forms.

Should any of these events occur, you are in for a rough ride, get help or demand a workout opportunity with the bank.

You may have to pay the bank something on your personal guaranty prior to it moving onto the SBA for a similar consideration. It may feel like double dipping but if apporpiateky handled it will result in the same amount opaid but to two different reivers, the bankl and the SBA. If mishandled it may result in a double payment. Be careful this is the grey area, the tricky part, not easy to navigate, and very important to the final results.

Please feel free to call Norm at my office, 413-584-2581, and ask him to arrange a no-obligation tele-conference.  We will discuss your options.

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