Stop Worrying, But Deal with Your Debt

For an outstanding SBA loan, talk to a lawyer familiar with small business lending. Then check in directly with the agency, experts suggest

I have an outstanding Small Business Administration loan for $200,000 that I used to start my business. I haven't made a payment for 20 years and numerous attempts to reach a settlement have not worked. I haven't heard a word from the SBA for more than six years. My home and two buildings I own were put up as collateral. I'm 66 and need to settle this debt. What do you suggest? Is there a statute of limitations on loan payback?

--H.B., Osage Beach, Mo.

The first suggestion would be that you hire a lawyer, and pronto. Make sure you see an attorney who is familiar with small business lending and state laws pertaining to the statute of limitations, says Stephen Dem, an Encino (Calif.)-based attorney specializing in collections. "You may have a large problem in terms of dollars owed—probably in the range of $800,000 with all the accumulated interest over 20 years," Dem says. "You may want to seek the advice of a bankruptcy attorney as well."

Before you start worrying about bankruptcy, however, lay out the situation and any documents you have saved for your attorney and ask him or her to determine the time period for enforcing the loan itself. "I think it is very unlikely that any state has a statute of limitations that lasts 20 years. Most statutes of limitations on written contracts are in the five- to eight-year range," says Donald F. King, an attorney specializing in loan negotiation and bankruptcy at Odin, Feldman, Pittleman in Fairfax, Va.

However you may have given the Small Business Administration a lien on your real estate in order to secure the debt, King says. Even if the statute of limitations has run on the underlying claim—so that the SBA could not sue you personally to recoup its loss—the lien may still be enforceable against the buildings you put up as collateral. Even so, 20 years is a long time, King says.

Finding a Compromise

"I predict that you will be told that the statute of limitations has run on the claim. As to the lien, I predict that the statute of limitations has either run or will run in the near future. The only caveat is that I do not know what you may have signed during your settlement discussions. If the SBA required you sign any type of "tolling" agreement—an agreement that puts the statute of limitations on hold for a particular period—then you may not have the defense of the statute of limitations," King says.

Jim Hammersley, the director of the SBA's Office of Business Loans, says the agency is always willing to enter into discussions with borrowers who owe money on outstanding loans. "Depending on the circumstances, SBA will either demand full payment or will negotiate a compromise amount that SBA would accept. The compromise amount is based on the maximum amount of money that a borrower can afford relative to the debt owed," Hammersley says.

Ask your attorney to contact Dana Relyea, in the SBA's Herndon Guaranty Loan Purchase Center, who can review your situation and help you settle the outstanding debt, Hammersley recommends. Good luck.

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