If you’re late on an EIDL payment, there’s a lot riding on what happens next. You might be able to pay less than the full amount owed, but only if you qualify. Jason Milleisen is the founder of Distressed Loan Advisors, and he encourages all SBA borrowers who are having trouble making payments to tackle the problem head-on and find help if they need it. Early intervention is usually a good idea because it increases your options. So can you negotiate EIDL debt? Possibly, but the answer starts with who you owe. Most SBA loans aren’t lent by the SBA: they’re made by private lenders, but guaranteed by the federal government. Disaster loans (including Economic Injury Disaster Loans, or EIDLs) are the exception: in that case the SBA is the actual lender. The SBA is not currently offering forgiveness of COVID-EIDL loans. COVID-EIDL grants, yes: but loans, no.
As of March 19, 2025, you can no longer apply for the Hardship Accommodation Plan (HAP) for COVID-19 EIDL loans. Now, you have to send all requests for any actions you want done on your loan directly to the COVID EIDL Servicing Center, at CESC@sba.gov. They might change the rules, so just check the SBA website regularly.
An Offer in Compromise
That is the official position, and it is not the whole picture. Some experts say you can negotiate an offer in compromise (like with IRS tax debts), and they recommend talking to someone who knows how those programs work. An offer in compromise means the government agrees to accept less than what you owe and forgives the rest. It’s not something you can just do automatically, and it’s not intended as a quick fix for cash flow issues. You won’t qualify if you’re making your payments or if you can pay the whole debt. SBA rules are blunt on this point: the SBA will reject an offer in compromise if the obligor can repay the loan in full, either in a lump sum or through an installment agreement. A borrower has no right to a compromise. Be aware, too, that the SBA’s own published position is that this route is not currently open for COVID EIDL loans, so treat it as something to explore with a professional, not a promise.
The SBA won’t just take anything you can scrape together. It measures your offer against what it could actually collect by forcing payment: leftover collateral, non-exempt assets like equity in your home over the exemption threshold, cars, investment accounts, cash, and business assets, as well as income it could garnish and your future ability to earn depending on your age, health and employability. Then it deducts exemptions, collection costs like attorney fees, the risk of losing in court, and the time value of money.
The SBA won’t entertain an offer under 5,000 dollars unless your financial hardship is so extreme that you can’t even afford that. Low-ball offers usually get turned down because the SBA needs to preserve the integrity of its loan programs, and they can’t accept offers so low that they would incentivize borrowers to default on their loans. For instance, if you have 100,000 dollars in home equity (above your state homestead exemption) and you have a good job, the SBA knows that your wages can be garnished and the house eventually sold, so a 5,000 dollar offer isn’t going to fly. The people who settled for pennies on the dollar were really broke, says Milleisen; that’s not typical. If your offer doesn’t get accepted, it doesn’t go away, you still owe the whole amount.
You can structure offers two ways: a lump sum and an installment offer. In a lump sum offer, you pay within 90 days of acceptance, usually in one big payment. These are more likely to be approved because the SBA receives the money and gets to close the file. In an installment offer, you pay over a longer period of time, up to 36 months. These are harder to get approved. If you miss an installment payment, you owe the full original amount back, minus any payments made, not just the compromised amount. If you can pull together a lump sum payment, even if you have to borrow from your family, you have a better chance of getting an offer accepted.
Here are some things you’ll need to get an offer accepted:
- a written offer on SBA Form 1150, identifying the source of funds and detailing special circumstances (such as illness);
- a current personal financial statement (on SBA Form 770) detailing your assets, liabilities, income and expenses;
- complete federal tax returns for the most recent two years;
- and an executed IRS Form 4506-C or Form 8821.
They’ll pull a credit report to confirm what you’ve said. Don’t hide any assets. Lack of documentation will provide the SBA an easy out to reject your offer.
Timing Matters
Timing matters as much as paperwork. If you get a demand letter from the SBA after you’ve defaulted, you have 60 days to reply. That’s the window to send an offer in compromise and any supporting paperwork. If you miss that deadline, the debt gets sent to the U.S. Department of the Treasury to be collected, and your options shrink significantly.
Once a loan is turned over to Treasury, it becomes much more difficult to settle. Jason Milleisen, a former vice president for one of the largest SBA lenders in the country, says Treasury adds a large penalty of 28% and demands a payment of at least 50% of that sum (he’s heard of some as high as 80% penalties). So you better have your offer submitted before the 60-day deadline, and if you need time to collect your documents, ask the SBA in writing to extend the deadline. Milleisen also says to plan on waiting at least four to eight months.
If you don’t reply to the demand letter - or they reject your offer - they send your debt to the U.S. Treasury under the Treasury Offset Program. Treasury can take your federal tax refunds, some state tax refunds, Social Security payments and federal retirement benefits. The government can garnish up to 15 percent of your disposable income from any private employer without a court judgment, but they must give you a written notice. Unlike most private debts, which have a statute of limitations of two to six years, the government can continue collecting until you pay off the debt and penalties.
If You Default
There is one piece of good news for smaller borrowers. A big difference between COVID-EIDL loans and the rest of the SBA’s loans is that if you owed $200,000 or less you didn’t need to sign a personal guarantee. If you guaranteed a loan, then your bank accounts, income, and home are on the line if you can’t pay it. And if your business closes you still have to pay the loan.
If you default, you’ll probably not be able to get another federal loan, as the government will add you to the CAIVRS database (which it uses to prequalify people for federally guaranteed or direct loans, including SBA loans, FHA mortgages and federally guaranteed student loans). It’s possible to get out, but it’s not an automatic process. Also, anything that they don’t make you pay in a settlement can be taxable income, reported on a Form 1099-C, unless you qualify for an exemption like being insolvent. (Bankruptcy typically excludes an amount of debt forgiven as part of bankruptcy from income, which means that in some cases, bankruptcy may be a better option. Consult a tax advisor and a bankruptcy attorney.)
So yes, EIDL debt can sometimes be negotiated, but only on the SBA’s terms, with full disclosure, and before the file reaches Treasury. In general, the sooner you take action the more options you’ll have. If you are weighing an offer, talk to someone with experience in these programs before the 60-day clock starts running.
