Question. If I want to make offer to settle, do I contact the lender or the SBA?
Answer. In general, you will reach out to the lender first. Even in the event of an SBA loan default, your lender will generally continue to service the loan. If there is some unliquidated collateral remaining, your lender probably still has the file and has not invoked the SBA Guarantee. if this is the case, you will continue to work with the lender. However, at some point your lender will refer the matter to the SBA for further collection; this usually occurs when your lender feels like they have done all they reasonably can to collect from you.
After the SBA has your file, they will send you the borrower and all guarantors a letter, actually a 60-day demand notice. The letter will advise the borrower to either pay balance in full or present the SBA with documentation for an “Offer in Compromise” to settle for less than the full balance either in a lump sum payment or a payment plan. This will usually include, at a minimum SBA Form 1150, the SBA Form 770 or equivalent, and SBA Form 413 (a copy of the original personal financial statement provided during the origination of the loan). If you have already received such a letter from the SBA, then you may deal directly with them and, unless you are told otherwise, your lender is no longer involved.
Regardless of who is handling your file, you can initiate an offer to settle your SBA debt under the SBA Offer in Compromise program. Settlement under this program is far preferable to suit and/or eventual transfer to the U.S. Treasury for action under the Treasury Offset Program (TOP).