SBA Loan Workouts May Seem To Take Forever
We have a few workouts that are very old, 16 months, 18 months, 22 months… Why should it take so long? The reasons are varied, of course, but it boils down to the following:
In most instances, the bankers do not like the offer, they say it’s too low, so they leave it on the bottom of the pile waiting for the borrower in default to raise the offer to a more acceptable level. The problem is, our clients want closure, to put the workout behind them, to end the sleepless and stressful nights wondering if it will get accepted.
Our position on this is an understanding that our clients want it over. However, we do not want to be muscled into offering more than we need to so we encourage our clients to wait… and sometimes to wait and wait some more. After all, they are not making any payments, nothing is happening to collect on the debt, so why not wait them out? Eventually the offer will be submitted and accepted and the results are worth it. Patience is a valuable virtue.
We have called the SBA reporting such unreasonable behavior on the part of the banks and we have had compliance people call the offending bank and urge compliance as an offer must be presented to the SBA for consideration. However, the reality is that the SBA respects the banks’ independence and will grant them great flexibility and leeway in their responsiveness, claiming that being made to wait even a year is not unreasonable. In these instances, we must either raise our offer or hold firm and wait them out. We choose the latter. It is also true that the SBA themselves can take a few months to process and respond to an offer, but this is not the bottleneck, it is the banks that are stalling.
In other instances, the banks sometimes avoid dealing with smaller issues preferring to tackle the bigger problems first. They put the smaller deals on the back burner, not wanting to commit their time and effort as it takes as much time to process a smaller deal as it does a larger one. So, they prioritize and the smaller deals can wait a very long time. Understand that the size of the deal is not measured by the size of the loan, but by the size of the offer to settle. Thus, even with a million dollar note, if we are offering $25,000 to settle, the deal is deemed a $25,000 deal and is not very interesting or compelling to work on when perhaps there is a $250,000 note with a $100,000 offer to settle. This is far more important to the bank and thus takes priority.
So what? It is not costing the borrower anything to wait, other than annoyance and an inability to get on with their life, which is certainly an issue, but there is little we can do about it. A workout is not a right, it is an opportunity and we must conform to the banks’ idiosyncrasies. The conclusion is very beneficial to our clients and the pain of waiting is part of the price one must pay to get the rock bottom results we achieve.