SBA 504 loan Defaults and the Offer in Compromise procedure
by RyanBridgeMgt, Window Shopper
- Created: February 19, 2013, 12:32 pm
- Updated: January 13, 2014, 8:16 am
504 loans issued by a bank or development company are typically for a business with real estate attached to the loan. In most cases, there is multiple Banks or CDCs involved who lent the borrower (s) money. In a default situation, the Bank must follow the SBA guidelines and the assets of the business must first be liquidated. The money of the sale will be applied to the balance owed, and then the building is sold in a foreclosure format. That money will also be applied to whoever is held in first position. Any extra money will be applied to any secondary lender such as the CDC which is typically the SBA. Any short fall left over comes after the guarantors individually via the personal guarantee signed on the initial loan documents. The borrower (s) are then left with an option to do whats called an Offer in Compromise. This is an alternative to declaring bankruptcy, and allows the debt to be written off for a fraction of the monies owed. It is very important to make sure that the OIC package is prepared and presented correctly. I can't stress enough how important it is to consult with an expert who has experience in preparing and negotiating OIC packages with the SBA. Most attorneys are not familiar with dealing with financials, and especially SBA debt. There is a few experienced firms out there other than myself at Bridge Management Consulting who is very good at negotiating SBA settlements and please feel free to contact me anytime with questions or concerns with any SBA default scenarios. If an OIC package is not submitted or gets denied, the loan gets passed to the US Department of Treasury, and that is a nightmare! Ryan Lineham - Sean Rosser - Bridge Management Consulting
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