Quite often, I hear from distressed borrowers who want to settle
their debt. In some cases settling is possible, in some cases its not. The purpose of this article is to explain
three key elements that must be present in order for a business to have a chance to settle their SBA debt. Please
keep I mind that this is NOT an exhaustive list.
1) The business must have ceased operations. This means that
you've closed your doors for good, or you have sold the business to a non-affiliated third party. The reason that
the SBA wants the business to have ceased operations is to ensure borrowers don't continue to benefit financially
after the SBA and the lender have taken a loss.
An OIC will be considered if a business is sold as a "going
concern" to a non-affiliated third party. The reason the buyer needs to be a non-affiliated third party is to
ensure that business was simply sold to make the borrower eligible for a debt settlement, only to have the borrower
re-purchase the business at a later date.
2) All business assets must be liquidated. This element applies to
situations where the business has closed for good. The SBA wants all assets to be liquidated and applied to the
loan balance BEFORE any OIC discussions begin. That way, they know how much is owed after all possible business
collateral has been liquidated. (Note: Many borrowers want to purchase their own assets from the bank. Typically,
the bank will not allow this, as it would basically mean that the borrower could remain in business, which as we
learned above, is not something the SBA will entertain.)
3) You must have access to cash. You'd be surprised how many
prospective clients come to us wanting to settle, but when we ask how much they have to offer, they respond that
they don't have any money to offer. If you don't have cash in your account today, there are creative ways to raise
cash that you need to explore if you hope to settle your debt.