Managing SBA Chapter 11 Bankruptcies

The hard economic reality right now is that small business bankruptcies are on the rise.

So let’s look at what you can do to prepare your SBA Lending team to protect the guaranty, control costs, and maintain SBA compliance while meeting evolving SBA lender requirements. As Benjamin Franklin said so long ago, an ounce of prevention is worth a pound of cure.

Define your SBA bankruptcy servicing processes

Document your SBA team’s process for Chapter 11 bankruptcies in alignment with the current SBA SOP 50 57 guidelines. And work with your legal team to establish internal procedures for working with bankruptcy counsel. 

With these in place, you’ll avoid rushed one-off decisions that can result in inconsistencies and higher legal costs.

Will the process be one-size-fits-all? Of course not. Every Borrower is different, every loan structure is unique, and every Chapter 11 bankruptcy has its quirks. But a solid framework gets you started in the right direction and keeps the momentum going.

Understand the legal budget

Without a clear process, it’s startlingly easy to trip over SBA’s $10,000 litigation costs threshold – and risk losing recovery of those expenses. Oops.

If your process includes defining the legal budget up front and incorporating SBA compliance checkpoints, you’ll have time to seek any required SBA approval if the $10K threshold looks likely to be crossed. 

Manage documentation

A standard, pre-defined documentation template supports tracking all the necessary paperwork required under SBA lender requirements. Then your decisions will correlate directly with recovery outcomes – and you’ll improve consistency in documentation and SBA servicing support.

You’ll also be ready when – not if – you need to justify litigation costs versus recovery.

Bankruptcy servicing isn’t fun – but it can be less stressful

When you’ve gone through the SBA Lending process with a business owner, you’re invested emotionally as well as financially. So it’s hard when you see them in trouble.

Setting up the process ahead of time helps smooth the way for you and your Borrower.

Want some help? We don’t replace your legal team (of course!), but as experienced SBA Lender consultants, we help lenders stay compliant with the current SBA SOP 50 57 procedures and maximize recoveries. Whether you’d like a review of your existing bankruptcy process, help setting up the templates and checklists, or you have an active Chapter 11 in process that you’d like reviewed – give us a call at 877-576-0819, or contact us through this link. 

We also offer customized SBA training for lenders focused on SBA servicing defaults, workouts, liquidation, recovery, and best practices. We’re here to help!