Obtaining a judgment against a borrower or guarantor is an important step in recovering an SBA 7(a) loan, but the battle is not over. A judgment gives the lender the legal right to pursue collection, but it does not guarantee payment. Before spending time and money enforcing a judgment, lenders should determine whether doing so makes financial sense and complies with SBA SOP 50 57 4.

This analysis is particularly important for SBA lenders because SOP 50 57 4, Chapter 21, requires collection efforts to be economically justifiable. The SBA will not reimburse litigation expenses incurred to enforce a writ or similar post-judgment remedies if the lender does not actually recover proceeds from enforcing the judgment.

An initial question a lender should ask is whether the obligor has assets that can realistically satisfy the judgment. An updated asset search is important before pursuing collection. Real estate, business assets, accounts, vehicles, and other property should all be evaluated. Just as importantly, lenders should determine whether those assets have sufficient equity.

Cost is another key consideration. Enforcing a judgment requires legal fees and appraisal costs. Before proceeding, lenders should compare those anticipated expenses with the likelihood of recovery. If the costs outweigh the potential benefit, enforcement may not be the best business decision.

Timing is important. In some cases, immediate enforcement is appropriate to prevent assets from being transferred or losing value. In other circumstance, waiting may lead to a better recovery if the borrower acquires new assets or experiences improved financial circumstances. Judgment enforcement should be viewed as a continuing strategy.

A lender must remember that winning the lawsuit is only part of the battle. Under SBA SOP 50 57 4, a successful judgment enforcement requires planning, current financial information, and careful documentation. Best practice is to weigh the costs of enforcement and ensure that every collection action is economically justified; lenders can maximize recoveries while protecting their ability to obtain reimbursement under the SBA guaranty.

For assistance with SBA collection matters, contact the attorneys at Starfield & Smith, PC at 215.542.7070 or visit us at www.starfieldsmith.com.