The SBA Offer-in-Compromise process requires a guarantor to prepare a detailed financial statement and provide very detailed supporting documentation. In fact, the whole process feels a lot like applying for your loan all over again, but is quite the opposite. Instead, the company for whom you pledged your assets and your good name as security has already received the loan proceeds and failed! Worse, as a guarantor, the SBA is now looking at you to make good on the defaulted SBA loan.
The Offer
With great care and after reviewing your financial situation in detail, your professional advisor has crated an offer for you. The offer is intended to catch the eye of the government and persuade them that a bird in the hand is still worth two in the bush.
A good offer will take into account your earning potential, age, employment history, health, and the health of your dependents, your assets, and those of your spouse in some cases. All of this information rolls up into an analysis that provides the SBA with the ability to compare what they think they may be able to recover through enforced collections to what you are offering. In short, you are making the case that your voluntary offer of settlement is the better deal between the two possibilities.
After submitting your offer, which agains feels like a mortgage application and is about as thick, several weeks pass. After a long wait, the SBA has responded — they have rejected your offer! Is it this end? As you look more carefully at their response, they have made a counteroffer!
The Counteroffer
In some cases, the SBA believes that a guarantor’s offer is, shall we say, in the ballpark, but they may disagree on some points supporting your offer and feel that you could do a little better. In such cases, the SBA believes the guarantor’s offer warrants something more than just a rejection. A counteroffer represents a deal that the SBA will do. These deals are often great opportunities because a referral to Treasury Department will cost you a 28% collection surcharge on top of what you already owe. Should you take it? That all depends; it may well represent your last chance to settle this matter and avoid bankruptcy or a referral to Treasury and possible wage garnishment.
Before you accept the counteroffer, take a day or two to calmly and cooly look it over. If you believe you can make it work, accepting the counteroffer will immediately stop the referral to Treasury — all that remains is to complete the payments required. On the other hand, if you believe the counteroffer calls for too much, but is almost manageable, then by all means let the SBA know. If a deal is close, you may still be able to gain some small concessions and perhaps enough to close a deal.
Do deals really get done?
The SBA Offer-in-Compromise process is there because the government knows that not all businesses make it and that repaying these debts is not always possible without causing extreme financial hardship. The default position of the SBA will always be — pay us, but don’t afraid to tell your story and ask for relief. You have very little to lose and much to possibly gain. Not all offers are accepted, even some really good ones get rejected, but the SBA Offer-in-Compromise is an option that should not be overlooked.
