So your company failed, and now the bank is asking about your personal assets as a way of collecting on the personal guarantee you signed. What do you do? Well one option is to prepare and submit an Offer In Compromise (OIC). What is this? It is a procedure that the SBA has for a defaulted borrower to make an offer that is less than the full amount of the amount owed on their personal guarantee. However, it’s not so simple to do…
The SBA created the OIC process as a means of collecting SOME money from a borrower’s personal guarantee, even if the borrower doesn’t have the ability to pay the full amount owed. This process is called the Offer In Compromise (submitted using the SBA 1150 form).
However, it’s not so simple. The process is convoluted. The OIC is approved by the SBA, but must be submitted by your local banker. In addition, your local banker must endorse your OIC, even though the local bank gets very little from the OIC proceeds (any money you pay goes primarily to the SBA). In fact, your local bank would most likely prefer you declare bankruptcy. It is easier, requires less paperwork, and allows the bank to write-off the loan quicker.
The key to a successful OIC submission is to win the support of the local bank. This is done by cooperation and full disclosure, and most importantly, by forming a relationship with the banker. Problem is, this is difficult for the borrower to do. It’s like defending yourself in court and needing to win the judge over to your point of view. It’s very difficult to be the borrower and tell the bank, “I can’t afford anything more than $X”, when the banker is asking for $Y. It’s much more effective for a third party to be the intermediary and negotiate a fair settlement. In addition, the paperwork needed is extensive, and having a third party assist in preparing and submitting the paperwork so it is most favorable for your position is tremendously helpful.
If you need help in dealing with an SBA loan or default, call us today at 401-390-3801. We can help.