SBA Loan Default: Assignment of Notes or Contracts... The Strategy

Sometimes it is important to pay attention to the small print...or in some cases even add some typical boilerplate small print into your documents as there may be important business issues that you may want to be aware of.

One often ignored but occasionally an issue is the right to assign, or the prohibition against assigning the note.

Here is the deal from both sides of the argument.

If you are the payee, the one owing and paying to the holder of the note, the maker, the one who receives the payment having either lend money or provided goods or services and is owed from the payee.

The payee wants to restrict the maker's right to assign, as the payee may have a relationship with the maker and thus ability and comfort that they will be able to work out issues along the way and foreclosure and liquidation unlikely even in a worse case situation. However if the maker has the right to assign, he could sell the note, by assignment and be rid of the matter, and the new holder of the note may just be difficult and willing to foreclose, thus a possible real problem to the payee but a valuable opportunity for the holder.

Thus the payee wants no assignments allowed, and the maker wants to be able to assign.

Contracts have other practical issues. You may not want the provider of services to assign your contract to another person, you wanted that person's service, add a no assignment clause. Your business may be all about subcontracting, or assigning, thus it would be mandatory for you to require assignment rights.

Now that you know these views, play your cards appropriately.