SBA Loan Default: Business Decisions Are Exactly That, Not Moral or Ethical Issues

Never before has it been clearer that business decisions are based on return on investment, nothing else. They are not moral or ethical issues, but profit and loss decisions. We need to closely inspect our decisions and determine if we are guilty of making moral decisions when it is inappropriate.

For example, what is not being discussed in the news today is the enormous number of defaults and foreclosures on homes with its owners being solvent and able to pay their mortgages but making the decision it is not worth supporting this debt. Home values have dropped precipitously, with an extreme likelihood that previous high water values will not return in the next decade.

Thus, borrowers who understand this imbalance are questioning the viability of making continuous payments on this investment on the asset as there will never be a return on this investment, never any equity and in fact it is to be expected that upon sale there will be shortfall...so what's the point, there is no return on this investment so let's take the loss now and move on. The response, they stop making payments and are prepared to abandon the property, it is a bad deal.

This category of borrowers is a large and growing category willing to default even if they can afford the payment. It simply makes no sense to continue paying on an upside down asset.

Yet so many people, some who have lost their jobs, have homes worth significantly less than the mortgage yet make every effort to make payments even though they are fully aware they cannot sustain the debt service and will soon fail anyways, yet they pay and pay and pay even at their families' peril. They feel it is the right thing to do, believing they gave their word and thus must now absorb whatever pain and punishment is required to continue paying because it is a morally and ethically correct thing to do.

So what a disconnect, some who can afford it make the decision it is an inappropriate decision to waste any further investment into an upside down property and thus default, despite their contract and personal guaranty.

Others, even without the ability to pay, having lost their income, make every effort humanly possible to make payments exhausting their savings and even withdrawing from their IRA's, feeling morally and ethically responsible for paying this debt even at the detriment of their families.

One side believes this is a business decision and default is a reasonable business response as there is no return on this investment possible. The other side believes it is a moral and ethical responsibility and payments must be made at all costs... or loss no matter what.

I leave the decision to you, however I completely support the former, that default is a business decision that must be made without consideration of moral or ethical issues, it is a financial contract not a marriage. There are no moral or ethical issues but only profit and loss decisions. The banks certainly do not consider ethical or moral issues, why are you?

To be responsible decision makers we must always determine what the appropriate guidelines we operate under are. If we remove the ethical and moral issues where they do not belong, and rely on profit and loss parameters, were they should control, you will not get in trouble, you will make the right decision. Applying moral and ethical parameters in business issues will eliminate the profit and loss evaluation and will result in bad decisions.

There is no place for ethical and moral issues in determining the viability of an investment, only profit and loss parameters and evaluation should control.