What To Do With A Bad Sba Loan Part One

Dec 03, 2009

Your company and your SBA Loan

In the past 18 months the US has experienced a vast decline in business and business outlook.  This has affected the large (GM, BofA, Merrill Lynch) as well as the small mom and pop store on mainstreet.  Daily I talk to business owners who have seen 30 to 50% or more declines in their sales activity.  Unfortunately it seems to have affected the smaller businesses – and those who have SBA loans – more than others.

Businesses and their bankers are now faced with difficult decisions, and those decisions may affect the small business owner for the rest of their life.  What should you do?  What are the options and alternatives?  The information below will help you through that process.

What NOT to do (Courtesy of Dan Betts):

Realize that there are three factors that are affecting your approach to solutions:

·         Stress and Worry – Taxes, Payroll, Guarantees and Family concerns.

·         Lawyers - Enough said

·         Innocent Mistakes – making the wrong move might cost you more, so you do nothing.


Doing nothing is not an option.  The only way to get beyond the stress and worry is to develop a reasonable plan that can be acted upon and to know the consequences.  Lawyers can be an important part of the final solution but they can’t, and won’t, make decisions for you.  Once you bring lawyers into the process, both sides “lawyer up” and you lose alternatives.

What NOT to say (courtesy of Jasonlees.com):

·                 It’s not my fault, the economy is terrible!

·                 Your bank got government money, so you should help me!

·                 If you give me another year, the business will get back on track!

·                 Your bank will lose money if you shut me down, so it makes no sense to do that!

·                 I didn’t realize you wanted me to make a payment, I thought you were working on a modification/deferment.

You are dealing directly with a banker, your banker in most cases, who trusted you enough to recommend the loan.  What HE is looking for is a businessman who knows enough to formulate a reasonable plan that the banker can recommend to his boss, or the “Special Assets” department.

What a SBA Loan isn’t:

            It isn’t like having a rich uncle guarantee your loan.  Don’t pay - no harm, no foul.  The guarantee is for the Banker, not the Borrower, so that the Banker has enough of the risk taken out of the loan that they are willing to make it.  If a banker can, he would rather write a conventional loan any day than a SBA loan – it takes less work.  But the SBA requires the bank to do everything that they normally would to satisfy the loan BEFORE the guarantee will pay.  If they can avoid the time, trouble and expense of collection actions, they will – but they need the borrower to provide them with reasonable evidence that the course of action won’t result in recovery.  Your plan is a key part of that evidence.

The common thread is a plan.  You need to develop a plan that answers the following questions:

1.     How much free cash flow (cash flow before debt service) does my business generate?

2.     What is the condition of the collateral of the loan?

3.     Based on the two answers, of the three basic alternatives, what makes the most sense?

At B2BCFO, we support our clients with proactive financial planning and reporting for their businesses, in a way that most CPA firms are unable to provide.  I and my fellow partners have over 25 year of experience dealing with real business issues.  If you were a B2BCFO client, you would be dealing with problems while they were still on the horizon – through budgeting and forecasts – so that problems are avoided.  Call now for a top to bottom business diagnosis.  The report is free.  The comfort is priceless.

David Buslee is a B2BCFO partner located in Southeastern Wisconsin.  He can be reached at (262) 271-2522


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