This is a good question, and the answer is not obvious or trivial. But first, let’s look at how the OIC process works.
The SBA Offer In Compromise process is subset of the SBA guidelines and Standard Operating Procedures (SOPs). It outlines how the SBA can, and will, accept offers for less than the full face value of debts owed as a result of a failed business and a loan default backed up by the borrowers personal guarantee.
The process itself is fairly straightforward, albeit the documentation requirements can be burdensome. However, while the process is available to any unfortunate borrower that defaults, the outcome is far less than guaranteed.
The process is as follows:
- Borrower alerts the bank that he/she is going to submit an OIC
- Borrower prepares the necessary OIC package and submits it to the bank
- Bank reviews the OIC, and them makes a determination to either a) reject it or submit it to the SBA for consideration. If they decide to submit it to the SBA for consideration, the banker must then decide HOW to submit it. Specifically, the banker can submit it with recommendation to approve, submit it with recommendation to reject, or submit it with no recommendation specified.
- The SBA reviews the OIC, and either accepts or rejects. If accepted, they notify the banker via email.
That’s it. Pretty simple, right?
So why is it so hard to get a bank to approve and process an OIC?
Most bankers, if asked, would quietly admit that they would actually prefer for a defunct borrower to declare bankruptcy rather than submit an Offer In Compromise. Why?
Simple…most people are lazy, and bankers are no exception.
It take time and energy for the banker to review the OIC. It takes time and energy for the SBA to review the OIC. And then, most importantly, the banker must oversee the OIC payments until the OIC is fully paid. In the case of OICs that include payment plans, this can sometimes be years.
For many bankers, this is just too much work, and they would rather the borrower just declare bankruptcy, even though the bank and the SBA would be better off accepting the OIC.
Therein lies the challenge, and that’s why it’s important to have someone who is knowledgeable and capable of negotiating not only the amount, but also the cooperation of the banker. If you are struggling, give us a call. We can help.