Hey guys, my name is Jason, and I’m the founder of Distressed Loan Advisors. If you’re looking for a consultation with me, you can do that here.
This blog post is a written version of this YouTube video:
Today, we’re diving into the SBA Offer in Compromise (OIC). If you’ve got an EIDL loan as of today (March 6, 2025), to my knowledge, the SBA has not approved an Offer in Compromise for any EIDL loans, despite the fact that they are sending out paperwork.
That being said, I’m going to do a deep dive into how an Offer in Compromise works and key aspects you need to know. I’ve been doing this for 15 years, and I could talk for hours on the topic.
I’ve outlined 10 key points to give you a comprehensive overview. If you’ve got a 7A loan you want to settle, this is highly relevant to you. If you have an EIDL loan, this could still be helpful in case the SBA introduces an Offer in Compromise program in the future.
1. Eligibility for an Offer in Compromise
To be eligible for an Offer in Compromise, two key conditions must be met:
- The business must have ceased operations. You don’t necessarily have to dissolve the entity, but you can’t still be running the business.
- All business assets must be sold. This can be done in one of two ways:
- A liquidation sale – Selling off equipment and assets piecemeal.
- A sale as a going concern – Selling the business as a whole, which generally yields better financial results.
Regardless of how assets are sold, the SBA must approve the sale because they have a security interest in those assets. Selling without their permission could be considered fraudulent conveyance.
2. Who Reviews Your Offer? The Bank or the SBA?
For 7A loans, both the bank and the SBA are involved:
- The bank reviews the offer first and must recommend it for approval.
- The SBA makes the final decision—even if the bank approves, the SBA can still reject it.
- If the bank does not approve, the SBA won’t even consider it.
- If the SBA does approve, the bank must follow through.
For EIDL loans (if OIC ever becomes an option), everything will go directly through the SBA, since they issued the loan directly.
3. Required Paperwork for an Offer in Compromise
If you’re applying for an OIC, be prepared to disclose everything about your financial situation. The SBA typically requires:
- Personal financial statement (specific OIC form)
- SBA Form 1150 (Offer in Compromise form)
- Two years of tax returns
- Two months of bank statements
- Last two pay stubs
- IRS verification forms (to confirm tax returns submitted match what’s filed)
Banks may request additional documents, but these are the standard requirements. The goal is to prove that your offer represents the maximum amount you can afford while being equal to or greater than what the SBA could collect through legal action.
4. What If Your Home Is Pledged as Collateral?
For 7A loans, some banks claim you must sell your home if it’s pledged as collateral. This is not true.
- Many settlements I’ve worked on included the release of liens on homes.
- If your home has substantial equity, the SBA will factor that into their decision.
- If your home is underwater (e.g., during the 2008 financial crisis), it may be easier to get the lien released.
For EIDL loans, the SBA rarely required homes as collateral. If yours was pledged, it was likely an error.
5. How Much Does It Take to Settle?
The million-dollar question: How much will the SBA accept?
- There is no set percentage—it all depends on your financial situation.
- The SBA does have minimum thresholds, but they do not just take a flat percentage (e.g., 20%) regardless of circumstances.
- If they believe you can pay in full, they will not settle.
Each case is unique, which is why I have a consulting firm—determining a reasonable settlement offer takes experience.
6. How Long Does an Offer in Compromise Take?
Expect the process to take 4 to 8 months:
- The bank takes 2 to 3 months to review and request additional information.
- If the bank recommends approval, the SBA reviews it, which takes anywhere from a few weeks to several months.
- Because it’s the federal government, you have zero control over the timeline—you just have to wait.
7. Can Business Partners Submit a Joint Offer?
No. If you have business partners, each guarantor must submit a separate offer reflecting their own finances.
- The SBA does not allow one partner to settle “their half”, unless the personal guarantees specifically limited a guarantee to a specific amount of percentage of the loan (tip: most guarantees are unlimited)
- If your partner is wealthy and can pay the full amount, there’s no chance of him settling.
- If neither of you can pay in full, a settlement is possible, but you both need to submit separate offers.
8. Do You Get a 1099 for the Settled Amount?
Disclaimer: This is NOT tax advice. Please consult a tax advisor for advice regarding your individual situation. The SBA has been unclear about who receives a 1099 after a settlement. Based on my experience:
- The borrower (business entity) is supposed to get the 1099-C.
- Guarantors typically should not receive one. The logic: If 10 guarantors exist, they can’t all receive a 1099 for the same debt cancellation.
9. What Kind of Settlement Documentation Will You Receive for an approved OIC?
Surprisingly, there is usually no formal settlement agreement.
- Most approvals come in the form of a basic approval letter.
- Some banks draft formal agreements, but the SBA usually doesn’t.
- I always double-check with the bank to ensure that all terms are honored.
10. How an Offer in Compromise Affects Future SBA Loans
If you settle an SBA loan, you will not be eligible for:
- Future SBA loans
- FHA loans
- Federally subsidized student loans
However, you can still borrow from conventional lenders. If you’re confident you’ll never take another SBA loan, this won’t matter. But if you might need an SBA loan in the future, think carefully before pursuing an Offer in Compromise.
Bonus: Will a Settlement Affect Your Credit?
Possibly. While not always, banks and the SBA can report settled SBA loans as “settled for less than the full balance.”
- If your credit score is a priority, this is something to consider.
- Even if the loan was not previously on your credit report, it could appear after settlement.
Final Thoughts
That’s the SBA Offer in Compromise in a nutshell! If you have a 7A loan, I’ve spent 15 years helping borrowers settle their debts. If you have an EIDL loan, the SBA is not currently accepting Offers in Compromise, but that could change.
If you’re struggling to pay your EIDL, the consultations I offer are primarily around “I can’t pay—what happens next?” If you want to book time with you can do so here.
Thanks for reading, and I appreciate everyone who supports my work. See you next time!
