SBA's compromise plan (OIC) Settlement amount: How is it determined?

How do you think I can convince OIC?

The answer to this is complicated. It is determined by several factors, which are described below.

Background: If a borrower with a bank loan is guaranteed by the SBA and defaults, the borrower has the option of submitting bankruptcy and seeking protection. ). However, the SBA (and the bank acting as the agent of the SBA) has the option to allow the default borrower to make a compromise (OIC) in lieu of the Ch 7 bankruptcy application. The borrower recognizes that the OIC is a privilege rather than a right, the SBA is not obliged to accept the OIC, the SBA is a good proposal, only in the case of judging that there is no fraud, concealment Egyptian false statement. The way the SBA decides this is often confusing, felt like grasping with black magic, highly dependent on the person watching the file. However, there are guidelines as shown in the SBA SOP. According to SBIC SOP of OIC,

"The amount must be reasonably related to the amount that must be recovered within a reasonable period of time through mandatory recovery procedures and sufficient to protect the integrity of the SBA loan program.

What does that mean? Briefly, acceptable OICs are determined by eight general criteria.

1. Size of shortage:

The deficit is an obvious factor in determining "settlement". But there is a belief that the SBA "sees" to get a 20% recovery, but there is actually no magic percentage that the SBA accepts. The reason is that the borrower's shortage of $ 150,000 or $ 1.5 million is meaningful only in the sense of other standards. To be exact, it is what the borrower can actually pay. What is a borrower? Alternative proposal?

2. If the borrower seeks protection in Chapter 7 bankruptcy (BK), the clearing value of the borrower's assets

This is an obvious alternative to OIC for borrowers. This is a calculation you have to do and it makes a lot of sense to present to banks and SBAs. If the borrower has limited exposure to the BK submission documents, it will influence how the SBA views the OIC ... But even if the borrower is not responsible for the BK submission, SBA May still require an important and substantial OIC payment amount based on the borrower's net value and payment capacity.

3. If you are not seeking protection of BK, the borrower's net asset.

Many obligors of debtor assume that "exempt" assets do not consider the idea of ​​SBA for OIC. This is incorrect. IRA and 401K are "exempted" included in the BK submission documents, but SIC will also consider these assets when considering OIC. why? As OIC is privileged, in many cases the officials of the SBA feel that the borrower should feel relieved of the asset to prove a good OIC.

4. Recovery if SBA should seek wage deduction for 5 years

SBA also takes account of the approach force of the guarantor. We recently talked to a high-level lawyer who was in default of about $ 600,000. When submitting BK, SBA was seeking $ 300,000 from him even though his exposure was less than $ 30,000. why? He earns $ 250,000 each year. They thought they would collect 300 thousand dollars in five years if they were to grab the wage (they could do it if he did not write the BK). In this case, I guessed the SBA is wrong - the borrower submitted to BK.

5. The "hope" of the borrower to avoid bankruptcy

This is an ambiguous calculation, but I will tell you that there is a "hidden" cost to submitting BK to customers. Work in the business world becomes complicated when borrowers submit for BK. These complications can pay actual expenses for more than 10 years when BK is reported in the credit report. I guess that the cost is $ 75,000 to $ 125,000. To put it another way, if borrowers can reduce OIC settlement, it is a good idea to settle them. However, as in the case of the lawyer above, if the settlement cost is higher than that, the borrower should seek protection through BK.

6. Structure of Offer

Many borrowers asks if they can construct an OIC payment plan. The simple answer is "yes", but the amount the SBA requires under the terms of the payment plan is usually prepared to be higher than the amount the borrower can make a lump sum payment. The reasons are simple: Many borrowers in payment plan set defaults on these plans. As SBA understands this, it requires a higher settlement amount to reflect the increased 'risk' not to receive all payments.

7. Other factors - health, age, unusual circumstances

SBA takes into account "other factors" such as age, health and so on. For example, if the borrower is 65 years old, the value of a clean credit report is meaningless to most people, so the hidden costs of BK are very small and close to retirement. Similarly, serious health problems affecting borrowers will affect the OIC consideration of the SBA. Other factors that may affect SBA are sick children, divorce, or sudden loss of employment.

8. Administrative cost

These sounds are pitch black, but the banks involved with the SBA are large, reliable and inefficient bureaucrats. Therefore, they have operating expenses, they have to be enough to make them interested, in order to change the circle of progress and actually handle the OIC. In the case of borrowers without BK, NO collateral, private ownership, this number is reliably discreet, probably between 10,000 and 15,000 dollars. If private ownership has a mortgage, the bank must waste the funds to eliminate these security interests (court costs).

In the end, trying to estimate what OIC settlement costs of defaulting borrowers will be is a practice based on multiple factors and standards. And there is no single answer - every situation is different and unique.