Does the SBA Accept an EIDL Offer in Compromise on a Closed Business in 2026?

Every day I find myself having to explain to closed businesses who have COVID EIDL loans that they cannot settle their EIDL loans. That’s because the SBA does not offer debt settlement - what’s called an offer in compromise - on Economic Injury Disaster Loans. That was the position as of January 2024, the most recent guidance this article relies on. See if anything has changed at the SBA. Until you hear otherwise, assume a closed business cannot settle its EIDL through an offer in compromise.

Hardship Accommodation

The EIDL (COVID loan) is a 30-year loan at a fixed interest rate of 3.75%. Those are good terms, unless you can’t make the payment. There’s something called a hardship accommodation. It’s 10% of the regular monthly payment for 6 months. And then they’ll renew it, to a second 6 month period at 10%. So two 6-month periods at 10% of the regular monthly payment. That’s the best option for most people. But if it’s under $200,000, you can make that same request a third time in the portal. So it’s about 10%. Some people report having to add five or ten dollars to the payment. Small loans are typically automatically approved in the portal, over $200k they have to be approved by an SBA employee.

7(a) and 504 Loans

The settlement process you may have heard about is for 7(a) and 504 loans, which involves closing down, liquidating and getting the approval, then filing the 1150 and 770 forms, which will lead to a lender recommendation, which will be decided by SBA. In order to qualify for an OIC the business must close down. Selling the business counts too. Your business assets have to be liquidated first.

NEVER sell anything unless you get permission from the lender in writing. Your assets are pledged to the SBA, so selling them without permission can be treated as fraud, and it could get you referred to the Inspector General. As for how to sell, you can try selling them on your own, and/or the bank can arrange to bring in an auctioneer who can find a buyer for your assets, or host an online auction to sell them. You can also list items on Craigslist or Facebook Marketplace, or sell the business as a whole. Price it to move; this is a fire sale. Don’t even bother making the offer until they’re liquidated.

Obtain SBA Form 1150. The form is the offer. This is your chance to make your case, and to argue why you should not be required to repay the SBA the full amount. Be sure to state the terms you’re proposing (e.g. “I offer $50,000 for release of my personal guarantee and lien on my primary residence.”). You also need to state where you’re getting the funds from, such as a home equity loan you will take out before the deal closes. The SBA will compare this against your personal financial statement (SBA Form 770). Not SBA Form 413, which some lenders will send to you by mistake, and which SBA will reject. When doing the personal financial statement, do not leave anything off. If the lender does not trust what you put down, declining your offer becomes easy. State your income net of tax, include your spouse’s income, only list your non-discretionary expenses (no boat, no vacations) and include all of your assets (including retirement accounts). You also need to provide two months statements for all liquid assets, two months pay stubs, credit forms. You should also ask your lender for its checklist.

You need to make an offer which makes sense for you and it needs to be based on what you can actually afford. You can’t low ball the SBA or a Bank and they won’t accept it. They are not in the business of settling for settling’s sake, they will do so only when it makes sense for them. Generally, the low hanging fruit here is equity in a home, especially if it was pledged as collateral. If it was, your offer will roughly have to start around that equity and may go up from there. They also will want a large part of cash and non retirement account money. They will consider your hardship but then also look at what they may be able to collect on their own through suing you. It will vary by state. Homes are safe in Texas. What if you have no assets? Then look to retirement accounts, a home equity loan, or your friends and family to provide the cash. Help from family usually shows the lender that you do not have cash.

Another thing to remember is that the SBA will not look at your OIC unless the lender’s internal committee recommends approval. It’s typically 4 to 8 months to process an OIC. Each lender works at their own pace. If the lender declines to participate or closes your file you will most likely receive a “60 day letter” from SBA. The 60 days starts from the date of the letter, not when you receive it. Once the 60 days has passed, your loan goes to the US Treasury, and the chances of settlement are slim to none. If you submit your OIC early and it is declined during that 60 day period, you may be able to submit a second, hopefully better, offer. Once a 60 day letter is issued the loan is charged off so, if settled, it will be for a lump sum. There are no payments.

It’s up to you. The bank officer has no duty to pursue you. It’s your responsibility to come forward and request assistance. Be forthright. Bankers know when you’re blowing smoke at them. They’ll ask for an appraisal of the house if that’s involved as collateral. They’ll check against what you’ve told them before, in your personal financial statement. The lender’s form to the SBA asks whether the borrower was cooperative. That probably won’t turn a no into a yes, but it may turn a maybe into one.

Know what a settlement covers: normally only the guarantor is released. The business, even if it is defunct and has no value, will still be on the hook with Treasury. You are no longer personally liable. Be sure to keep a copy of the documents showing the approved settlement as well as your proof of payment in a safe place, like with the deed to your house. Sometimes loans are misclassified and sent to Treasury. If that happens, all you need to do is show Treasury proof that you settled and paid. The issue should be cleared up fairly easily.

The SBA is tough but fair. If it makes sense to cut a deal, they will. But they won’t cut a deal if they think they can collect in full. For a closed business with an EIDL, though, the latest guidance here says that kind of deal is not available. Be proactive. Ask the SBA if the COVID EIDL settlement guidance changed. In the meantime, use the hardship accommodation to keep the payment within reach.