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Current SBA Guidelines on EIDL Loan Settlements

Struggling with a COVID EIDL loan? Learn how the SBA's Offer in Compromise works in 2025, eligibility rules, and settlement options before policies change.

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Current SBA Guidelines on EIDL Loan Settlements

Current SBA Guidelines on EIDL Loan Settlements

The SBA has strict policies when reviewing Offers in Compromise for SBA loans, and COVID EIDL loans are no exception. Based on current guidance:

  1. The SBA Prioritizes Collection Before Settlements
    • If the loan is still with the SBA (not referred to the U.S. Treasury or collections), a settlement may be possible.
    • If the loan has defaulted and been transferred to the Treasury, settlement options become much more difficult.
    • The SBA generally requires borrowers to liquidate assets before considering an OIC.
  2. The Amount of the Offer Matters
    • The SBA does not accept "pennies on the dollar" settlements.
    • They will evaluate your personal finances, assets, and ability to pay when considering an offer.
  3. There Are No Automatic Discharges
    • Unlike PPP loan forgiveness, COVID EIDL loans are not automatically forgiven and must be repaid unless settled through an approved Offer in Compromise.
  4. SBA Policies Are Subject to Change
    • The SBA may modify its OIC policies in the future based on economic conditions and legislative changes.

Steps to Submit an Offer in Compromise for a COVID EIDL Loan

If you believe you qualify for a COVID EIDL settlement, here’s how to proceed:

Step 1: Go Through Business Closure Review

  • If your loan is still with the SBA, you can work directly with them to explore settlement options.
  • Your business must be closed.
  • You will have to account for and sell all remaining business assets with proceeds going to the SBA
  • The SBA must be satisfied that no business assets were distributed to shareholders
  • Once the Business Closure Review is concluded, you will referred to an OIC loan specialist

Step 2: Gather Financial Documentation

The SBA will require:

  • Personal financial statements (SBA Form 770)
  • Bank statements and tax returns
  • Proof of business closure (if applicable)

Step 3: Submit an Offer

  • You must propose a realistic settlement amount based on your financial ability to pay.
  • The SBA will evaluate your assets, liabilities, and income before accepting any offer.

Step 4: Negotiate with the SBA

  • The SBA may counteroffer or reject your proposal if they believe you can pay more.
  • If an agreement is reached, the settlement must be paid as a lump sum—installment payments are typically not accepted.

What Happens If Your Offer in Compromise Is Rejected?

If the SBA rejects your OIC, you may still have options:

  • Appeal the Decision: If you can provide additional documentation proving financial hardship, you can request reconsideration.
  • Explore Treasury Settlement Options: If your loan has moved to the U.S. Treasury, a different settlement process may apply.
  • Seek Legal or Professional Guidance: An SBA debt attorney or settlement expert can help navigate the process.

Key Takeaways on SBA Offers in Compromise for COVID EIDLs

  1. As of 2025, the SBA has not announced a specific Offer in Compromise program for COVID EIDLs, but settlements may still be possible under existing SBA guidelines.
  2. Only personally guaranteed loans (over $200,000) are typically eligible for settlement.
  3. The SBA’s collection process prioritizes recovering the full loan balance before considering settlements.
  4. Offers must be reasonable and based on the borrower’s financial capacity.
  5. SBA policies can change at any time—borrowers should stay informed of any updates.

Need Help With Your SBA Offer in Compromise?

If you’re struggling with your COVID EIDL loan and are considering an Offer in Compromise, it’s essential to approach the process strategically. The SBA’s policies are complex, and settlements are not guaranteed.

Final Thoughts

The SBA’s stance on COVID EIDL loan settlements could change at any time. Business owners with unaffordable loan payments should act quickly to explore their options before their loans are transferred to collections. If you qualify for an Offer in Compromise, submitting a well-prepared application can increase your chances of a successful settlement.

For the most up-to-date information, continue checking official SBA guidance or consult a legal professional specializing in SBA debt relief.

Why Hire Us to Help You with Your Treasury or SBA Debt Problems?

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Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure

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Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements

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Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.

$150,000 SBA 7A LOAN - NEGOTIATED WORKOUT AGREEMENT

$150,000 SBA 7A LOAN - NEGOTIATED WORKOUT AGREEMENT

The client personally guaranteed an SBA 7(a) loan for $150,000. His business revenue decreased significantly causing default and an accelerated balance of $143,000. The client received the SBA's Official 60-day notice with the debt scheduled for referral to the Treasury’s Bureau of Fiscal Service for aggressive collection in less than 26 days. We were hired to represent him, respond to the SBA's Official 60-day notice, and prevent enforced collection by the Treasury and the Department of Justice. We successfully negotiated a structured workout with an extended maturity date that included a reduction of the 14% interest rate and removal of substantial collection fees (30% of the loan balance), effectively saving the client over $242,000.

$310,000 SBA 7A LOAN - SBA OIC TERM WORKOUT

$310,000 SBA 7A LOAN - SBA OIC TERM WORKOUT

Client personally guaranteed an SBA 7(a) loan for $100,000 from the lender. The SBA loan went into early default in 2006 less than 12 months from disbursement. The SBA paid the 7(a) guaranty monies to the lender and subsequently acquired the deficiency balance of about $96,000, including the right to collect against the guarantor. However, the SBA sent the Official 60-Day Due Process Notice to the Client's defunct business address instead of his personal residence, which he never received. As a result, the debt was transferred to Treasury's Bureau of Fiscal Service where substantial collection fees were assessed, including accrued interest per the promissory note. Treasury eventually referred the debt to a Private Collection Agency (PCA) - Pioneer Credit Recovery, Inc. Pioneer sent a demand letter claiming a debt balance of almost $310,000 - a shocking 223% increase from the original loan amount assigned to the SBA. Client's social security disability benefits were seized through the Treasury Offset Program (TOP). Client hired the Firm to represent him as the debt continued to snowball despite seizure of his social security benefits and federal tax refunds as the involuntary payments were first applied to Treasury's collection fees, then to accrued interest with minimal allocation to the SBA principal balance.

We initially submitted a Cross-Servicing Dispute (CSD) challenging the referral of the debt to Treasury based on the defective notice sent to the defunct business address. Despite overwhelming evidence proving a violation of the Client's Due Process rights, the SBA still rejected the CSD. As a result, an Appeals Petition was filed with the SBA Office of Hearings & Appeals (OHA) Court challenging the SBA decision and its certification the debt was legally enforceable in the amount claimed. After several months of litigation before the SBA OHA Court, our Firm Attorney successfully negotiated an Offer in Compromise (OIC) Term Workout with the SBA Supervising Trial Attorney for $82,000 spread over a term of 74 months at a significantly reduced interest rate saving the Client an estimated $241,000 in Treasury collection fees, accrued interest (contract interest rate and Current Value of Funds Rate (CVFR)), and the PCA contingency fee.

$150,000 SBA 7A LOAN – NEGOTIATED WORKOUT AGREEMENT

$150,000 SBA 7A LOAN – NEGOTIATED WORKOUT AGREEMENT

Client’s small business obtained an SBA 7(a) loan for $150,000.  He and his wife signed personal guarantees and pledged their home as collateral. The SBA loan went into default, the term or maturity date was accelerated and demand for payment of the entire amount claimed was made.  The SBA lender’s note gave it the right to adjust the default interest rate from 7.25% to 18% per annum. The business filed for Chapter 11 bankruptcy but was dismissed after 3 years due to its inability to continue with payments under the plan. Clients wanted to file for Chapter 7 bankruptcy, which would have been a mistake as their home had significant equity to repay the SBA loan balance in full as the Trustee would likely seize and sell the home to repay the secured and unsecured creditors. However, the SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection to the SBA. Clients then received the SBA Official 60-Day Notice and hired the Firm to respond to it and negotiate on their behalf. Clients disputed the SBA’s alleged balance of $148,000, as several payments made to the SBA lender during the Chapter 11 reorganization were not accounted for. To challenge the SBA’s claimed debt balance, the Firm Attorneys initiated expedited discovery to obtain government records. SBA records disclosed the true amount owed was about $97,000. Moreover, because the Clients’ home had significant equity, they were not eligible for an Offer in Compromise or an immediate Release of Lien for Consideration, despite being incorrectly advised by non-attorney consulting companies that they were. Instead, our Firm Attorneys recommended a Workout of $97,000 spread over a lengthy term and a waiver of the applicable interest rate making the monthly payment affordable. After back and forth negotiations, SBA approved the Workout proposal, thereby saving the home from imminent foreclosure and reducing the Clients' liability by nearly $81,000 in incorrect principal balance, accrued interest, and statutory collection fees.

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