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Debt Resolution: What Are SBA Offers in Compromise (OIC)?

It's been a tough year for many small business owners. Find helpful information in our guide to Offers In Compromise and how to find legal assistance.

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Debt Resolution: What Are SBA Offers in Compromise (OIC)?

Just like thousands of small businesses throughout the country, you took out a loan backed by the Small Business Administration (SBA). Then the pandemic hit, taking the economy and your business down with it and you have more than $30,000 in debt you are unable to pay.

Statistics show that one out of every six businesses, or 17.4%, have an SBA loan default. Once you default on an SBA loan the collection process will begin.

During the initial 60-day period of collections, you will need to either settle or provide “offers in compromise.” If you do not take appropriate steps the Treasury Department takes over collection proceedings.

If you are a small business owner, whether in default or managing to juggle your loans, you need to understand what happens if you default on a loan. Learn here how to file an offer in compromise and where to find legal assistance.

What Are Offers in Compromise?

Rather than having your debt go to the Treasury Department where it will be subject to the addition of fees and costs up to 30%, you need to take immediate action during the 60-day period the SBA provides. During this period you may request either an administrative review or file an offer in compromise.

The compromise is an out-of-court settlement that works well for businesses that are out of business and liquidating their assets. The offer made must be acceptable to the borrowers and guarantors, be submitted in the proper format, and include specific elements.

Submitting an Offer in Compromise

An Offer in Compromise is submitted using SBA Form 1150. The Small Business Administration sets forth the elements of a compromise offer:

  • The amount of the offer is reasonable in comparison to the recoverable net amount through enforced collection
  • There is no misrepresentation or fraud
  • The obligor provides full disclosure of financial capacity via SBA Form 770
  • Business operations have ceased and liquidation of business collateral is complete
  • The participating bank concurs with the action
  • Supported valuations are provided for realty mortgaged or subject to SBA judgment
  • Identification of the source of funds being used for payment is made

If there are any additional factors you may include those in your compromise offer. The offer will undergo a review of the financial factors surrounding the borrower and guarantor. These include the debtor’s ability to pay and one's earning potential.

Other considerations include the health and life expectancy of the business owner, conditions of the local economy, and any settlement arrangements they have with other creditors.

Because of the SBA loan default statute of limitations, laws surrounding collections, and precise requirements of the submission, it is best to contact an SBA Attorney as soon as you receive your 60-day notice.

You Must Prove Financial Hardship

When you are filing an Offer in Compromise on default, you are claiming you lack the ability to pay. If you are unable to prove financial hardship that makes it impossible for you to make payments, you will not receive a settlement agreement.

You and your financial situation will be scrutinized. This includes whether you owe other creditors, the amount you owe, etc. They will review your credit score and look to see if you are spending money in a way that is inconsistent with financial hardship. For instance, travel and frequently dining out do not indicate financial difficulty.

Liquidate Your Business Assets Legally

In some cases, your business assets will not pay your SBA loan debt in full. You must also be careful not to liquidate in a manner that places you into a legal problem with the lender. The first step is to speak with your lender about the liquidation process for your business loan.

It is possible the bank will be agreeable to you finding a buyer. The bank may prefer to place the business and its assets into a general auction. The important thing is to receive written permission from the bank before you proceed.

When you do liquidate your business any proceeds from the sale must go toward your SBA loan. If you use the proceeds from liquidating the business toward other personal debt, you place yourself in a position of receiving a denial on any settlement offer you make to SBA.

Why Your Home Equity Matters

When taking out the SBA loan, if you provide your home as collateral, the SBA will look at its value first. If the home has enough equity to cover your SBA loan, they will probably not accept a settlement offer.

The SBA does not always value your home using market value minus loan balances. They may consider a discount off the market value. Because you agreed to use the home's value to pay off the debt on the loan, you may be forced to sell with all proceeds going to the SBA debt.

Do I Need an Attorney for Filing Offers in Compromise?

When you hire an attorney to prepare your SBA Offer in Compromise they will do evaluate your case for settlement. This step includes any or all of the following:

  • Review of your SBA loan documents
  • Collect your financial information, including assets and liabilities
  • Notify the SBA lender of your intent to settle
  • Review all your financial information and recommend a settlement offer to the borrower
  • Preparation of SBA Form 770—Financial Statement of Debtor
  • Preparation of SBA Form 1150—Offer in Compromise
  • File the Offer in Compromise with the lender or the SBA

They may negotiate with the lender or SBA to obtain a settlement. The SBA has no obligation to accept an OIC but using an experienced SBA attorney puts you in the best position for acceptance of your offer.

If you do not take prompt action the SBA will transfer your case to the U.S. Treasury Department Offset Program (TOP). TOP may seize your tax refund, garnish your wages, and even take offsets against your Social Security payments.

Administrative Wage Garnishment

The SBA may order an administrative wage garnishment (AWG) through your current employer to pay your delinquent debt. If you receive notice of an AWG you have the right to request a hearing before it becomes official.

The request for a hearing must be made in writing and must dispute either:

  • The amount or existence of the debt, or
  • The terms of the repayment schedule (unless it is a signed agreement)

The process for requesting a hearing varies depending on whether it was initiated by the SBA or the Treasury Department. If the AWG is through the Treasury Department, follow the instructions on the letter to request a hearing. If the AWG is through the SBA, use the AWG Hearing Request Form.

Tax Refund Offset

If the SBA plans to take your federal income tax withholding refund to offset your SBA loan, they must advise you in writing in advance. This allows you to dispute the offset in the event it is being taken for debt no longer owing or other circumstances that warrant consideration.

SBA Loan Deferment and Debt Relief

If you requested a loan deferment, that modification or suspension of your loan payments is not a default. Many businesses requested and received deferments due to the pandemic, usually for about six months.

The SBA has issued extensions on their deferments until 2022. They add the loan payments you do not make during the deferment to the term of your loan. This means the final maturity date of your loan will be lengthened by the number of payments you have deferred.

Interest will continue to accrue during the deferment period. It is important you watch the deferment period and when payments must resume to prevent being caught in a default.

Part of the CARES Act for coronavirus aid the SBA Debt Relief Program’s creation provides relief to small businesses with a 7(a), 504, or microloans. Under the program, the SBA covers payments, including principal, interest, and fees for a six-month period.

SBA Loan Default Statute of Limitations

SBA loans fall under the Federal Statute of Limitations Act, 28 U.S.C. 2415(a) which requires any action for damages to be filed within six (6) years of when the action accrues. It may also be filed within one (1) year after final decisions are rendered in an administrative proceeding. This limitations period ONLY applies to the government's timeframe to file a lawsuit against you in federal court. It does not apply to administrative remedies described herein.

There are also other interpretations regarding when the case must be filed. If payment is made, then the right of action begins to accrue again after each payment. For this reason, it may be difficult to determine if the government meets the statute of limitations requirements when they file an action against you or your business.

An SBA lawyer will know what the statute of limitations is, its various interpretations, and whether there are any problems with its compliance.

Do You Have $30,000 or More in SBA Loan Debt?

If you have an outstanding loan of $30,000+ to the SBA, contact the Protect Law Group for a case evaluation on filing offers in compromise. Our experienced SBA attorneys and federal agency practitioners provide real solutions to those who are experiencing SBA loan problems.

We provide representation nationwide to personal guarantors, federal debtors, and small business owners. Call us today at (833) 428-0937 to book a consultation.

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.



Client personally guaranteed an SBA 7(a) loan to help with a relative’s new business venture.  After the business failed, Treasury was able to secure a recurring Treasury Offset Program (TOP) levy against our client’s monthly Social Security Benefits based on the claim that he owed over $1.2 million dollars.  We initially submitted a Cross-Servicing Dispute, but then, prepared and filed an Appeals Petition with the SBA Office of Hearings and Appeals (SBA OHA).  As a result of our efforts, we were able to convince the SBA to not only terminate the claimed debt of $1.2 million dollars against our client (without him having to file bankruptcy), but also refund the past recurring amounts that were offset from his Social Security Benefits in connection with the TOP levy.



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. Client received the SBA's Official 60-Day Notice with the debt scheduled for referral to 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 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.



Clients borrowed and personally guaranteed an SBA 7(a) loan.  Clients defaulted on the SBA loan and were sued in federal district court for breach of contract.  The SBA lender demanded the Client pledge several personal real estate properties as collateral to reinstate and secure the defaulted SBA loan.  We were subsequently hired to intervene and aggressively defend the lawsuit.  After several months of litigation, our attorneys negotiated a reinstatement of the SBA loan and a structured workout that did not involve any liens against the Client's personal real estate holdings.

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