SBA loan deferment question?

[Carolyn D.]

I'm the CFO for 3 companies (1 real estate company, 2 operating businesses leasing from landlord) with an SBA loan taken out in 2003 currently in good standing. Operating businesses have entered a cash-flow problem in Q1'2014 preventing them from making the March, 2014 triple-net lease payments that cover the monthly SBA payment. SBA lender (CIT Small Business Lending) entered bankruptcy protection in 2008 and are controlled by some sort of bankruptcy agency. Principal loan balance is ~56% of original loan with loan entering its 11th year of the 20-yr. term.

Attempted to contact CIT to request loan deferment/interest only payment to get us through Q1'Q2 cash-flow problem. Can't get past customer service representative! I was told that the only way to get our request processed is to default on the SBA loan. Don't want to do that but want to know if making the interest-only payment in March 2014 is worth doing at this point to show that we really are attempting to keep the loan in good standing?

[Bill Gulley]

Carolyn, welcome to BP!

Hate to say it, but deferment of payments or changes are made as a modification and are part of a work-out for loans in default. The lender can't really modify a note that is current under SBA guarantees or insured, it will effect the terms underwritten. So, to bite the bullet may be the best choice.

However, you may be at a much lower LTV, if the income supports a new loan that can give you some time. You can get a payoff agreed in some cases like to 45 days with the lender. You next payment can be 30 days later, 75 days of fudge factor. Refi the loan if possible before trashing the existing loan and credit issues.

You probably already know there is no tactical retreat walking away from SBA. :)