Honesty IS the Best Policy

There is no doubt that a crippling debt load can make an individual feel trapped and hopeless.  Small business owners very often go years dealing with declining revenues, juggling vendor debt and staying up all night trying to figure out how they are going to make their next secured debt payment.  When the business ultimately fails and they come to us looking for help working out their personal guarantee they are desperate to find any way out.  There fore, it is no surprise when some of my clients ask me for some type of “trick” or “loophole” for getting their debt eliminated when their business fails.

I face this constantly and I answer them all the same way.  There is no “trick” or “loophole” for eliminating your SBA or other secured debt.  The correct strategy is to create a detailed proposal which outlines all the relevant facts and presents them honestly and completely.  Lying, omitting valuable assets on financial statements, transferring assets to friends/family can all be deemed as fraudulent activities when dealing in a workout environment.  It is simply not worth the risk and getting caught could get you in a lot of trouble.  If the bank ever finds out about this your settlement opportunity could vanish.

I recently settled a clients SBA debt load for 3.2% of the outstanding balance.  This result was very surprising to my client and he did not believe we could ever have such success throughout the entire process.  When we first spoke he would ask me questions on how I could “hide” certain assets on his financial statement and if I knew of any ways to move his boat and vehicles to friends and family.  I told him I could not help him if this was the service he wanted.  What I could provide him is a settlement based on the value of his liquid net worth.  That I would reveal all these assets to the bank and that we would offer them a fair settlement based on the value of these assets and any other assets he possessed with immediate recoverable value to the bank.  He did not have much value compared to the amount of debt outstanding yet it was a far better option for the bank to take this offer than reject it and force the borrower into a bankruptcy.  When we finally reached an acceptance from the bank my client was thrilled and he really could not believe we achieved such success by being honest and transparent.  I’m sure there are examples of debtors who have lied on financial statements and gotten away with it, but it’s never a strategy I would recommend.  Honesty is always the best policy.