As we work with defaulted SBA guaranteed loans every day, filing dozens of Offers in Compromise, we have a broad base of experience in dealing with their issues and guidelines. I see new trends before others as we initiate many Offers. The latest silliness from the SBA is their most recent rejection citing future potential earning power, as the reason for rejection!

Apparently the SBA has a crystal ball that lets them know that a person will escape he downward trends of this economy and will recover and will experience greater earning capacity capable of paying off their loans in the future. Impressive, I would love to have a look at that  crystal ball..

Since most of the SBA guaranteed loans are based on small business applications, actually all, and a defaulted loan payback must result in a liquidation of the business assets, a requirement prior to making an Offer in Compromise, and since must of  the loans I see are for hundreds of thousands of dollars, even if the business owner does land a job, do they really believe they will be able to better service the SBA defaulted loan from a weekly paycheck? As if there will be an abundance of revenue left over each month to throw thousands at the payback requirements necessary to support a large loan or even small loan payback? As if there are jobs available at all?

I doubt it.

What happened to the SBA bench mark for evaluating Offers in Compromise, ‘the net liquidated value of the borrower at the time of application’? Gone? Forgotten?

So the bank and or the SBA simply waits for the borrower to recover, getting no payments at all until that glorious day when the borrower lands a  job and can then begin the payback? Is this really  how desperate the SBA is in finding reasons to refuse an Offer in Compromise? Is this truly a standard they will be exploiting, a reason to reject a perfectly viable Offer in Compromise to settle?

Fortunately I hear this only occasionally, but recently more frequently. We always figure out a  best path around such absurdness, but it is creative. Be careful when you begin to hear this, it is a problem. It prevents re-emergence and a second try, the presumed goals and objectives of the Offer in Compromise program.

It is an unworkable standard as there are no benchmarks, it is pure fantasy, yet apparently the SBA and its representative banks are indulging in exactly that…fantasy, as a reason ro reject an Offer.

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