Every time my phone rings, I take a quick look at my caller ID to see what state the call is coming from. I’m almost always excited to learn about a caller’s situation and how I could help. But there is one exception: when the call comes from Louisiana. Do I dislike the state of Louisiana? Of course not. But I tend to sigh when I get a call from the Big Easy, and the reason is simple: Many SBA disaster loans were issued after Hurricane Katrina to Louisiana residents.
Simply put, these loans are very, very, very, very, very hard to pay off. And that’s why I don’t like getting calls from Louisiana. I get 2-3 calls a week from someone with a disaster loan who is struggling to pay it off, and in most cases I turn those people away. Trust me, I’d love to help, but these loans tend not to be conducive to settlements for a number of reasons:
1) They are almost always insured with houses. In cases where your home has enough equity to cover your debt, there is no chance that the SBA will pay off the debt. The logic is simple: if they can foreclose on your mortgage and get all their money back, there is no reason to settle.
2) The loan terms are generous to begin with. Most SBA disaster loans offer very low interest rates over a long period of time (usually 30 years), so when things go wrong, there isn’t much you can do to help. If your payment is $150 per month and you’re having difficulty making it, paying at any level is likely to be onerous.
3) These loans are generally made to individuals. As a result of going to people who had little resources to begin with, asking someone to raise a significant amount of cash to pay off a disaster loan is always a difficult task. If you owe $30,000 and can’t afford a $300 monthly payment, you probably won’t have access to enough cash to make a lump sum settlement offer. In other words, since most disaster loan borrowers have limited financial resources, the chances of raising a lump sum sufficient to pay off are also limited.
4) The “powers that be” are arbitrary. More than any other area of the SBA, I’ve found that the folks at SBA Disaster Loan rely less on facts and more on arbitrary thresholds. Unlike SBA business loan agreements, which largely consider a person’s financial situation, disaster loan people basically say “we don’t care that you can only pay $1,000, we want you to pay $10,000.” For this reason alone, many disaster loans never have a chance to be paid off.