Elements of a Successful SBA Offer in Compromise
SBA loan settlements require specific knowledge of current policies and changes. Here are the elements of a successful SBA offer in compromise.
How Small‐Dollar Fraud Provides the SBA Powerful Leverage though the SBA OIG’s Administrative False Claims Act (AFCA) Muscle That Can Cost SBA Lenders, Borrowers, and Guarantors Up To $1 Million
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On December 23, 2024, Congress super-charged an obscure statute—the Administrative False Claims Act (AFCA)—when it passed the FY 2025 National Defense Authorization Act. The amendments raise the cap on administrative cases from $150,000 to $1 million and broaden what counts as a “false claim,” empowering every federal inspector general—including the SBA Office of Inspector General (OIG)—to pursue loan-related fraud or malfeasance even when the Department of Justice (DOJ) says “no thanks.”
More importantly, it should be noted that SBA Administrator Kelly Loeffler published her "Day One Memo" confirming SBA plans to aggressively step up collection efforts and audit investigations for COVID loans disbursed due to the pandemic –which can lead to a number of AFCA actions in the near future.
As part of the Trump Administration’s policy to pursue SBA COVID Loan fraud specifically involving PPP and EIDL loans, legislation was introduced in Congress by Republicans to ensure that collections on loans made to small businesses borrowers and guarantors related to the COVID-19 pandemic will no longer be suspended.
Click the following link to learn more about the "Complete COVID Collections Act" that was introduced as a Senate bill and may become federal law in the future: COVID Collections Act
Feature: Where the case is heard
AFCA (as amended): Administrative hearing before a United States Administrative Law Judge (ALJ) at the SBA Office of Hearings & Appeals Court (OHA) or Board of Contract Appeals member
Civil FCA: Federal District Court
Feature: DOJ involvement
AFCA (as amended): DOJ must approve the filing but does not have to prosecute in Federal District Court
Civil FCA: DOJ (or a qui-tam relator) files the suit
Feature: Dollar threshold
AFCA (as amended): ≤ $1 million per case (indexed for inflation)
Civil FCA: No cap
Feature: Penalties
AFCA (as amended): Up to $5,000 per false claim/statement + double damages + investigation costs
Civil FCA: Up to ~$27,000 per claim + treble damages
Feature: Statute of limitations
AFCA (as amended): 6 years from violation or 3 years from discovery (max 10)
Civil FCA: 6–10 years depending on facts
Sources: 31 U.S.C. §§ 3801-3812; FY 2025 NDAA § 5203.
Hearing & Decision – After discovery and an evidentiary hearing,the presiding ALJ issues findings in a Decision and Order – which can involve the imposition of penalties or dismisses the case. Appeals go to the SBA Administrator and then to the Federal D.C. Circuit pursuant to rights and remedies under the Administrative Procedures Act (APA).
Player: 7(a) / CDC Lenders
Potential AFCA Violation: Certifying that collateral was properly perfected or liquidated in a commercially reasonable manner when it was not
Real-World Example: Filing an SBA Form 159 indicating all fees were disclosed when “packaging” fees were hidden
Player: Borrowers
Potential AFCA Violation: Overstating payroll in a PPP forgiveness application
Real-World Example: Claiming EIDL funds were used for working capital while diverting cash to personal real estate or other personal expenses
Player: Guarantors
Potential AFCA Violation: Concealing assets to avoid repayment (reverse false claim)
Real-World Example: Transferring property to a spouse after default but before Treasury offset; Lying about or omitting relevant financial information in financial statements (Form 770), Offer in Compromise(Form 1150) or other pertinent documents submitted under penalty of perjury
Player: Servicers / Purchasers
Potential AFCA Violation: Misreporting liquidation proceeds to maximize the SBA guarantee purchase
Real-World Example: Failing to remit auction proceeds and certifying “no recoveries available"
Because the amended AFCA now covers reverse false claims,hiding assets or under-reporting recoveries can trigger liability even when no new funds are sought. Source: (National Law Review)
For a single 7(a) guarantee purchase of $400,000 supported by four false certifications, exposure can exceed $900,000 before interest.
The AFCA’s $1 million ceiling and broader definitions mean SBA OIG no longer needs to wait for DOJ to chase many PPP, EIDL, Disaster, 7(a)or 504 fraud cases. Small-dollar no longer means small risk. A single inaccurate certification under penalty of perjury can invite an administrative lawsuit before the SBA OHA Court that freezes assets, garnishes Treasury payments, and tarnishes reputations.
If you are an SBA borrower, or guarantor facing an inquiry—contact the attorneys at SBA-Attorneys.com for a confidential Case Evaluation.
This article is provided for informational purposes only and does not constitute legal advice. Consult a qualified SBA-Attorney for advice regarding your individual situation.
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
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
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.
Clients obtained an SBA 7(a) loan for $324,000 to buy a small business and its facility. The business and real estate had an appraisal value of $318,000 at the time of purchase. The business ultimately failed but the participating lender abandoned the business equipment and real estate collateral even though it had valid security liens. As a result, the lender recouped nearly nothing from the pledged collateral, leaving the business owners liable for the deficiency balance. The SBA paid the lender the 7(a) guaranty money and was assigned ownership of the debt, including the right to collect. However, the clients never received the SBA Official 60-Day Notice and were denied the opportunity to negotiate an Offer in Compromise (OIC) or a Workout directly with the SBA before being transferred to Treasury's Bureau of Fiscal Service, which added an additional $80,000 in collection fees. Treasury garnished and offset the clients' wages, federal salary and social security benefits. When the clients tried to negotiate with Treasury by themselves, they were offered an unaffordable repayment plan which would have caused severe financial hardship. Clients subsequently hired the Firm to litigate an Appeals Petition before the SBA Office & Hearings Appeals (OHA) challenging the legal enforceability and amount of the debt. The Firm successfully negotiated a term OIC that was approved by the SBA Office of General Counsel, saving the clients approximately $205,000.
Our firm successfully resolved an SBA 7(a) loan default in the amount of $212,000 on behalf of an individual guarantor. The borrower’s business experienced a significant downturn in revenue and was unable to sustain operations, ultimately leading to closure and a remaining personal guaranty obligation.
After conducting a thorough financial review and preparing a comprehensive SBA Offer in Compromise (SBA OIC) submission, we negotiated directly with the SBA and lender to achieve a settlement of $50,000—approximately 24% of the outstanding balance. This favorable resolution released the guarantor from further personal liability and provided the opportunity to move forward free from the burden of enforced collection.
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.
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