SBA does it again, disaster loans are a disaster, another bad deal.

Disaster loans, Katrina, World Trade Center, hurricanes, earthquakes, what a wonderful service our government provides. Acknowledging when events occur that we are unable to control, acts of nature in particular, which have devastating effects on a, possibly wiped out,  portion of our community. They come to our rescue and offer emergency loans, to provide stability, salvation and even survival to the families and businesses severely effected by these disasters.

Its a good thing. People who are basically without homes, possessions, cash, clothes, etc, are given  the support they need to survive and re-emerge…hopefully. This is America.

Thank you government, it makes me proud to know that we take care of our own in a time of need. These are the types of services we need our government to provide and apparently they are meeting the need.

If only the story had a happy ending, we would all be satisfied, but as usual there is a tragic flaw in the story that needs reporting.

Here is the disaster part of the disaster loans.

Once again, you had best win and had better recover and had better make a profit and earn an income no matter how serious your disaster was because in the disaster loan program there is no Offer in Compromise program…there is no way to workout your loan if you fail to be able to recover and pay it back. That’s tough.

With a normal SBA loan there is an Offer in Compromise program and it is based upon  the clear need for compromise, recognizing the reality that many SBA guaranteed loans will default and the borrower will lose his business and his cash flow thus the SBA provides them with a back door to resolve their loans with a short payback plan called an Offer in Compromise program which allows a scheduled payback of less then what is owed. The SBA’s own guidelines allow reductions of up to 80% of the loan, and in many situations we have done better then that as the net liquidated value of the borrower may be unable to even handle that amount. So the SBA has a procedure and forms to request such benevolent treatment. Hallalujah SBA you got it right on this one, helping people who need the support you are providing, and when necessary to forgive some of the payback, even substantially all of it.

So what could be wrong with this plan, it sounds appropriate and the right thing for everyone involved?

Yes it is, EXCEPT for reasons that defy logic and challenge the credibility of the SBA, it appears that there is no Offer in Compromise program for disaster loans. So the people most needy, who are being provided assistance when confronted by a real disaster and have accepted money to survive, had better recover completely and profitably as the loan has no Offer in Compromise provisions and serious penalties for default.

Apparently, the SBA in their infinite wisdom believes it is ok for a defaulted business owner who borrowed with an SBA guaranty to receive Offer in Compromise support but a borrower of SBA funds for a disaster relief loan cannot apply for relief with a similar Offer in Compromise request.

It gets worse, the Department of Justice acts as the collection agency for the SBA and will jack interest rates on defaulted SBA disaster loans to as much as 42% annualized…!!!

So who is the predator now, offering low interest rates for disaster loans then when defaulting on the payback, burying them with insurmountable debt, crippling their opportunity to emerge and restart their lives…

What a benevolent administration we truly have. All I can say about this is shame on you SBA… what is your real mission? Who are you really serving and how is this being accomplished with such predatory practices. It seems the SBA is a shark wearing a  good guy disguise….watch out.

PS:  Because of our commitment and tenacity we penetrated the system and determined that while unadvertised, and basically denied, there is a path to debt forgiveness. The SBA apparently does not want to admit it or advertise it, or even acknowledge it exists when challenged. We uncovered it, a tough road to go, but the path is there. We will save a few more families from economic destruction, who are our clients…bu what happens to those who do not seek our help?