SBA Default and Offer In Compromise.
SBA Default and Offer in Compromise - the OIC process may allow you to settle your loan for pennies on the dollar.
Learn why the SBA failed five consecutive financial audits, what it means for small businesses, and how the agency plans to fix internal control weaknesses.
Book a Consultation CallThe U.S. Small Business Administration (SBA) has faced serious scrutiny in recent years due to its inability to obtain a clean financial audit. From FY 2020 to FY 2024, the SBA received repeated disclaimers of opinion on its financial statements, signaling systemic internal control failures. These issues raise concerns not only for government accountability but also for the small business community that relies on the SBA for vital support.
This blog breaks down the findings from OIG Report 25-25, detailing the core issues, the SBA’s remediation strategy, and what small business owners and stakeholders should be aware of moving forward.
The SBA’s financial audit troubles stem from its rapid scaling during the COVID-19 pandemic. Between FY 2020 and 2021, the agency distributed over $1.2 trillion in pandemic-related aid through programs like the Paycheck Protection Program (PPP), COVID-19 Economic Injury Disaster Loans (EIDL), and others. While this support was critical for struggling businesses, it overwhelmed the agency’s financial reporting systems.
Key findings from the Office of Inspector General (OIG) include:
Five consecutive years of audit disclaimers.
Up to seven material weaknesses in internal controls annually.
Audit issues primarily tied to COVID-19 relief programs, financial reporting failures, and inadequate oversight of contractors and IT systems.
Repeated audit recommendations—many of which remain unresolved.
When the SBA faces internal control and audit failures, it affects the broader small business ecosystem:
Delayed program funding and audits may slow down future relief or assistance.
Reduced public trust in SBA-managed programs.
Potential for fraud or mismanagement, as oversight gaps create vulnerabilities.
Moreover, businesses that rely on the SBA for financing or disaster assistance must recognize the agency’s current limitations in oversight and governance.
In January 2025, the SBA launched its Financial Statement Audit Remediation Strategy, focusing on five key areas:
Refining internal governance.
Finalizing critical financial policies.
Validating COVID-19 EIDL loan populations.
Improving third-party vendor oversight.
Upgrading financial information systems.
While the strategy is a step in the right direction, the OIG notes that not all material weaknesses have been fully prioritized, and execution gaps remain. Notably, the SBA has not yet designated a single empowered executive with the authority to enforce remediation across all program offices—an essential step for success.
The OIG made four strategic recommendations:
Appoint a senior executive to lead audit remediation.
Improve agencywide communication of audit goals.
Integrate remediation goals into the strategic plan.
Align individual performance plans with remediation outcomes.
SBA management has accepted most recommendations, though the key leadership appointment remains unresolved as of September 2025.
The SBA plays a critical role in supporting small businesses, especially in times of economic crisis. However, effective support requires sound financial management and internal accountability. While the agency is taking steps to recover from its audit challenges, stakeholders should remain informed and vigilant.
Small businesses should also consider working with experienced legal professionals who understand the SBA’s evolving landscape—particularly when navigating SBA loan disputes, appeals, or compliance issues.
If your business has been impacted by SBA loan programs or you’re facing challenges with SBA-related financial or legal matters, contact Protect Law Group today. Our experienced attorneys are here to help you understand your rights and options. Contact us today to ensure your business is protected and positioned for success.
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 personally guaranteed an SBA 7(a) loan that was referred to the Department of Treasury for collection. Treasury claimed our clients owed over $220,000 once it added its statutory collection fees and interest. We were able to negotiate a significant reduction of the total claimed amount from $220,000 to $119,000, saving the clients over $100,000 by arguing for a waiver of the statutory 28%-30% administrative fees and costs.
Our firm successfully resolved an SBA COVID-19 Economic Injury Disaster Loan (EIDL) default in the amount of $150,000 on behalf of Illinois-based client. After the business permanently closed due to the economic impacts of the pandemic, the owners faced potential personal liability if the business collateral was not liquidated properly under the SBA Security Agreement.
We guided the client through the SBA’s Business Closure Review process, prepared a comprehensive financial submission, and negotiated directly with the SBA to release the collateral securing the loan. The borrower satisfied their collateral obligations with a payment of $2,075, resolving the SBA’s security interest.
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.
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