Intensive Servicing: Workouts

by Karen Mchugh
SBA Complete

Although not required, SBA encourages lenders to make a good faith effort to negotiate a workout on a SBA loan when the borrower begins struggling (if feasible). To determine if the borrower is a good candidate for a workout, the lender should decide whether the borrower is, competent, cooperative, acting in good faith and financially viable.

In order for a workout agreement to be legally binding, both the lender and borrower must provide something of value (consideration). For example, in exchange for the lender to restructure the loan, the borrower should be required to do one or more of the following:

• Fix any errors in loan documents
• Waive defenses
• Release lender liability claims
• Provide additional collateral, or
• Allow entry of a confession of judgment if the workout fails

The workout options used can vary depending on the circumstances. The most common workout options include:

1) Forbearance – enforced collection activities may be postponed to allow the borrower to recover and improve cash flow
2) Extension of maturity date – the maturity date of the Note may be extended up to 10 years beyond the original maturity date.
3) Repayment plan for past due amounts
4) Deferment (temporary measure) – interest should continue to accrue
5) Modification of Note – such as interest rate changes, or the payment amount modified
6) Reduction of loan balance – the amount of accrued interest or principal owned may be reduced, provided it is part of an approved compromise agreement
7) Assumption – provided that the assumptor is “reasonably equal” to or “better” than the existing obligor
8) Voluntary sale of collateral – the sale must be closely supervised to ensure that the costs are reasonable and net proceeds are applied to the loan balance

SBA’s prior written approval is not required to enter into a workout agreement unless it includes a compromise of the principal balance of the loan or some other action that requires SBA approval. SBA should respond to a request for prior written approval within 15 business days.

When the borrower has made at least three consecutive timely payments under the terms of a workout agreement, the loan may be returned to regular servicing status.

We want to be your “go to” team for whatever needs you may have in the SBA lending world. To learn more about the all-inclusive SBA lending services of SBA Complete, go to or call us at 800-801-2378.

SBA Complete is the premier SBA Lender Service Provider in the nation. We provide tailored outsource solutions covering all aspects of the SBA lending process, from sourcing loans through post-closing servicing. We also provide consulting services and specialize in pre-audit loan reviews.