Modifying Your SBA Or Bank Loan…Not The Way To Go

I talk to many borrowers who have guaranteed SBA loans who experience problems and cannot make the payments.  Revenues are down sharply, expenses and overhead are increasing and debt service is impossible to support.Typically, thus they want to modify the loan to allow them to make smaller debt service payments, figuring this is the bet way to deal with the issue as they are either in loan default , in loan workout because they have already defaulted or they are going to soon default and they know it and want to avert the disaster. They expect the future to be brighter so when the modification is over, as it is most often a temporary request or allowance, they can then return to the original debt service requirements. Even if they are looking for a permanent modification, they are hopeful the downturn will soon end and all will be back to normal.

I have bad news, first it is extremely difficult to get such cooperation from either the bank or the SBA and if it does occur, it will be short termed, probably 3-6 months of interest only payments, hardly the answer to your problems.

Second bad news, it is extremely unlikely that you will be in better shape when the modification period is over. It just will not happen. The time period will be too short, the modification too insignificant, and the business will not be generating significantly larger revenues in 3-6 months.

I have even more bad news, even if the modification is long term, in all likelihood this will not resolve the issue as the modified monthly debt service is likely to syill be to much to support.

The problem  is, the loan was taken out when the revenues where much higher. Now with sharply reduced revenue, the loan o matter how modified cannot and should not be serviced, it is no longer a loan your business can afford no matter what the terms or monthly debt service may be. The real problem is the loan. It’s now, under existing circumstances  too much debt and cannot not be serviced by the business for what ever reason it may be that the business is not performing adequately.

The reality is, the business is doing whatever it is doing and it is unlikely you will be able to adjust it meaningfully to be able to service the loan thus the only possible answer is not to modify the note terms but to reduce the principal. That will work. Debt forgiveness is the only answer, not loan modification. SBA loan forgiveness, bank debt forgiveness, must be forgiven for the business to survive under the severe business conditions we are experiencing.

The problem is how to do this as neither the bank nor the SBA will willingly cave into such a request. In fact even getting a modification is most frequently a very difficult task most often rejected.

The real point here is if you find yourself thinking that all you need is a six month interest only or a few months without any payment, stop. Do not accept the banks meager offer of modification, it will only prolong the pain and will not solve anything at all. In six months, nothing will change and you will be right back where you were. This is a long term issue and requires a loan workout, with SBA or bank koan forgiveness. Forgiveness of debt is the only answer that works and this is very difficult to achieve, nearly impossible without understanding and employing  some sophisticated strategies.

Call for help, you need a major adjustment. a large reduction of debt, not a minor tweaking of interest or a few months of non-payment and it will take a sophisticated strategy carefully implemented  to produce this result.

You must be pro-active and implement the strategy that will yield the dramatic changes we are calling for…debt forgiveness.

If you are in default, or about to go in to default and need forgiveness of debt to survive, it can be done. Call us for help.

Call me I can help you initiate the plan that you require. 413-584-2581, Norm will arrange a teleconference call for me to discuss your options with you.