When a struggling small business owner misses a payment on an SBA loan, it is flagged as a troubled loan by the bank. Most of my clients have been diligent about communicating with their bank, so the bank is not really surprised by this event. However, my clients are frequently surprised when the bank’s tone suddenly changes from a friendly “we are here to help” to a much more ominous “you realize that if these payments are not brought current, the loan will default. And in many cases, that is exactly what happens…the business owner can’t make that next payment either…and then they receive “the letter”.
The letter I’m referring to is the Notice of Default, which is usually followed by a Demand Notice. These are two legally worded letters sent by the bank’s attorney. They lay out the facts, as the bank see it. You have failed to make the payments as agreed, and thus are in Default. Sometimes the Notice of Default gives the borrow a bit of time to come current…but if that doesn’t happen, then the Demand Notice sends notice that the FULL amount of the loan is now due. The bank wants their money, and they want it NOW.
So the question is, when you receive these letters, should you hire an attorney?
My answer is NO.
Why? Simple. If you hire an attorney, the bank will immediately turn the file over to their attorney. The banker will not speak with or attempt to negotiate with a borrowers attorney. They will, instead, turn it over to their legal department or external attorney to negotiate.
Now you have your attorney (paid by the hour) speaking with the bank’s attorney (paid by the hour). Guess what they will do? You got it…they will talk and negotiate and discuss and argue and debate and…well, you get the picture.
A better alternative would be to speak directly to the bank and attempt to reach an agreement. However, this is problematic since the bank doesn’t necessarily believe what you tell them…you do, remember, owe them a lot of money.
The best alternative is to hire a specialist who can negotiate with the bank and obtain the best settlement possible without engaging a legal process.