The 18 Month Default Rule, Be Careful

A new benchmark has become apparent with the SBA for loans in default; it exists also for leases, secured bank loans, lines of credit. It is what we call the “18 month rule.” It goes like this: If a borrower defaults within 18 months of taking out the loan, there is a presumption of deceit, possible fraud, or wrongdoing of some sort. The banks look very hard at these borrowers, investigating them carefully and thoroughly.
In the case of the SBA, bankers are even held to a different set of standards and guidelines when handling workout cases that defaulted in less than 18 months in order to protect their SBA guaranty. These standards require further investigations and a more forensic look at the numbers, business collateral and the net worth of the borrower. This colors the entire workout. A presumption of wrongdoing is not the atmosphere we want in working out the best results possible. Everything the borrower says, does, or provides becomes suspect. An assumed premeditation on the part of the borrower is the attitude of the bank and this is dangerous and counterproductive, but very real.
Unfortunately, many borrowers make bad decisions as they near their catastrophic end of going into default. Decisions that, in and of themselves, are defensible and reasonable under the circumstances, even understandable, but that become fodder for investigation with a presumption of intentional wrong doing if default occurs within 18 months of closing the loan.
The reality is that the economy crashed quite quickly, leaving many new borrowers in deep trouble (also very quickly) and it resulted in honest and painful default within the 18 month benchmark. In most cases, there was no wrongdoing at all, no bad intent, no premeditated plot or plan, just bad luck and many borrowers struck down at the starting gates. Now, these borrowers are subject to intense scrutiny as fraud is the presumption.
We have never seen fraud in such a situation. In fact, we have never seen fraudulent borrowing at all. However, this issue is a very sensitive issue with Goals Of Financial Management Slideshare banks and borrowers in default need to understand this preconceived notion and bias as it will typically result in additional issues and concerns.
Does this mean you should hang on for 19 months if you are confronting default? Probably not, as few borrowers really have that level of flexibility. When default looms in the air, especially in early stages of development, there usually Earn Money Online Apps are no options. Things tend to crash and cannot be prevented. If you are contemplating a preemptive default, and have such flexibility, it is worthy of consideration, although other factors should-and will-weigh in more significantly.
Most borrowers have nothing to hide and can endure such an attitude and inspection but it does result in close scrutiny and often times questionable decisions will come to light that would not have otherwise had the “18 month rule” not been in play. Keep this in mind if appropriate to your situation and plan accordingly. Be aware of this issue. This is an excellent reason to have experienced representation handle your workout; it will play a significant role in reducing and additional risk or concern and will result in a better conclusion.

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