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SBA 504 Loan default options

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    SBA 504 Loan default options

    Hi and thanks for all the insight everyone on this site has given. It really is a great place to get information for regular people who aren't familiar with bk and foreclosure proceedings.

    I have a SBA 504 loan in default (530,000 to bank and 300,000 to SBA) and the bank has already issued a demand letter telling me to make up the back payments due (74,000) or else they're going into foreclosure proceedings. Original monthly payments to the bank are 5700/month, but my restaurant business just can't cover those payments. Instead, we could only do about 4000/month, which we have paid for the past 2 years to the bank. The SBA loan is current because they had already modified the loan for us on their end so we only pay 1800/month to them. The collateral property was appraised at 1M so I have about 200,000 in equity.

    I contacted the bank and they would not budge at all with modification/workout. They gave me this offer:

    1) Make a lump sum payment of 48,000 to pay off past due interest and then they would do a remod/workout.
    2) Come up with 400,000 to buy them off the first lien position on the loan, either by short-sale or getting another bank to take it on. The bank has stated that they would settle for 400,000.
    3) Foreclosure.

    They did not let me do a deed-in-lieu because, they said, the SBA was involved and that was not a possibility (which I would accept if they guarantee not to come after my personal assets)

    My question is, are there banks out there that would entertain the idea of taking on the first lien position? It seems like option 2 would be in my best interest because they hacked off over 100,000 in the debt? My business is running good, there's growth and we are current on all our bills except this loan payment to the bank. If the monthly payment on the loan was reduced, my business can continue to operate and function and grow. This was the only thing that held my business back. If they do decide to foreclose, I expect I would have to file Chapter 11 for small businesses, but would Chapter 11 really be necessary just to get the bank to mod the loan?

    Thank you all so much for any information and insight that you can offer!

    In my opinion, Second option is more better for you as it will in you favor.


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