I recently had a client come to me for help. His lender had referred the file to the SBA for collection, so his window to negotiate directly with his lender had closed. Despite submitting the OIC through the lender being his best chance to settle, I thought he still had a decent chance to settle directly with the SBA.
We went ahead and submitted all the required paperwork. About week later, to our surprise, we received word that the offer had been declined and been referred to the US Treasury. We had no chance to find out why the loan had been declined, and were given no opportunity to improve the offer.
So 2 weeks after the initial offer, we submitted a new offer to the US Treasury for slightly more money. That offer was also declined, and this time, they told me that they would not consider settling for less than full principal balance. That was the final nail in the settlements coffin. We are now waiting to hear from the collection companies who the Treasury refers files out to, although we have little confidence that dealing with the collection company will be any more productive.
So what are the lessons to be learned here?
1) Being proactive in the Offer-In-Compromise process with your lender can mean the difference between a reasonable settlement and dealing with the headache of collection calls and letters for years to come.
2) Dealing directly with the SBA, the Treasury, or a collection company can be hard because they don’t give you access to decision makers, so it’s sometimes impossible to know why an offer was declined.
3) Settlement offers that would be acceptable when submitted through your lender are often declined when submitted directly to the SBA, the Treasury, or a collection company. It’s not fair, but it’s the reality of SBA debt settlement.
Overall, it’s too bad that my client did not reach out to his lender as soon as his business closed. Instead, he waited to hear from his lender, and unfortunately he never heard from them (unfortunately, many lenders follow this practice because they are overwhelmed with files and lack the man power to thoroughly work through the OIC process with every borrower). As a result, the opportunity to get the loan settled passed, and we are now mired in a process that could take years to resolve. As I always tell my clients, if you want to settle, do it sooner than later because once the window of opportunity to deal directly with your lender closes, it’s closed for good.