Offer in Compromise for EIDL Loan: How to Settle for Less
So your staring at your EIDL loan balance—maybe it’s $150,000, or $300,000, or even more—and the reality is clear: your never going to be able to repay the full amount. Maybe your business failed and you have no income from it. Maybe your working a regular job now and the monthly EIDL payment is more than you can possibly afford. Maybe your business is limping along but barely generating enough to survive, let alone make loan payments. Whatever your situation, you’ve heard about something called an “offer in compromise” (OIC) that supposedly lets you settle SBA debts for pennies on the dollar, and your wondering: can I really settle my EIDL loan for way less than I owe? How does it work? What are the chances they’ll accept?
An offer in compromise is exactly what it sounds like—you propose to pay the SBA a lump sum (or sometimes a payment plan) for less than the full amount you owe, and if they accept, the remaining debt is forgiven. For example, you might owe $200,000 on your EIDL loan but offer $30,000 as full settlement. The SBA evaluates your offer based on your “reasonable collection potential”—essentially, what could they realistically collect from you if they pursued you to the full extent of there collection powers over a reasonable time period. If your offer approximates or exceeds what they could collect through garnishment, asset seizure, and other enforcement, they might accept it because getting something now is better than years of collection efforts that might yield less.
However, there’s critical information you need to know up front: **OIC availability for EIDL loans has changed over time, and current eligibility is unclear**. Some recent sources from 2024 indicate that EIDL loans are NOT currently eligible for offers in compromise, while earlier sources (2022-2023) describe the SBA beginning to accept EIDL OICs. This conflicting information creates confusion for borrowers who aren’t sure whether OIC is even an option. This article will explain what OICs are, how they work when they’re available, what the requirements are, what your chances of acceptance are, the tax implications, and what alternatives exist if OIC isn’t currently available for EIDL loans. If your hoping to settle your EIDL debt for less than you owe, read this entire article carefully to understand what might be possible and what steps to take.
What Exactly Is an Offer in Compromise?
An offer in compromise is a formal proposal you make to the SBA to settle your loan debt for less than the full amount owed. The legal authority for OICs comes from federal regulations allowing the SBA to compromise debts under certain circumstances. Here’s how the concept works:
You propose a settlement amount. After analyzing your financial situation, you determine how much you could realistically pay as a lump sum or through a short-term payment plan. This amount is typically far less than what you owe—maybe 10%, 20%, or 30% of the total debt. You submit a formal OIC proposal to the SBA explaining why you can’t pay the full amount and offering the reduced amount as full settlement.
The SBA evaluates your “reasonable collection potential” (RCP). This is the key concept in OIC evaluation. The SBA calculates what they could collect from you if they pursued every collection remedy available—wage garnishment at 15% of disposable income over X years, liquidation of your non-exempt assets, future income from your business if it’s still operating, liens on property that would be collected when you sell, etc. They project this over a reasonable period (typically several years) and arrive at an RCP number.
They compare your offer to the RCP. If your offer is reasonably close to or exceeds the RCP, the SBA might accept it. Why? Because getting your offered amount now (or over a short payment plan) is more valuable than potentially collecting a similar amount over many years through enforcement actions that cost the government time and resources. If your offer is way below the RCP, they’ll reject it because they believe they can collect more by pursuing you.
If accepted, you pay the settlement and the rest is forgiven. Once the SBA accepts your OIC and you pay the agreed amount, the remaining debt is discharged. You no longer owe anything beyond what you paid. The debt is reported as settled, and while your credit takes a hit from settling for less than the full amount, you’re free of the debt burden.
The OIC process essentially forces you to prove you’re broke (or close to it) and that the SBA won’t get much by continuing to pursue you. It’s not for borrowers who have significant assets or income but just don’t want to pay—it’s for borrowers who genuinely lack the ability to repay the full debt.
Are EIDL Loans Currently Eligible for Offers in Compromise?
This is where it gets confusing. Historically, the SBA’s OIC program was primarily used for 7(a) loans and other traditional SBA loan programs, not for disaster loans like EIDL. However, with the unprecedented volume of COVID EIDL loans (over 4 million loans totaling nearly $400 billion), and with many borrowers unable to repay, the SBA began exploring OIC options for EIDL loans around 2022-2023.
Reports from 2022-2023 indicated that the SBA was starting to accept OIC proposals for EIDL loans, with certain requirements like business closure or demonstration of inability to pay. Attorneys and consultants who work in SBA debt resolution reported success submitting EIDL OICs and obtaining settlements. The acceptance rate was reported as around 35% for EIDL OICs that were properly structured.
However, more recent information from 2024 suggests that EIDL loans may no longer be eligible for OIC through the standard program. Some sources state that as of September 2024, EIDL loans are not eligible for offer in compromise, though “case evaluations” are offered to explain other available options. This could mean the SBA closed the EIDL OIC option, or it could mean the process has changed and requires different procedures.
The practical reality for borrowers: **You need to verify current OIC eligibility directly with the SBA before investing time and effort into an OIC proposal**. Contact the COVID EIDL Servicing Center at COVIDEIDLServicing@sba.gov and ask specifically: “Are COVID EIDL loans currently eligible for offers in compromise? If so, what’s the process to submit an OIC?” Or consult with an attorney or consultant who specializes in SBA debt resolution and who has current information about what the SBA is accepting.
Don’t assume based on a 2022 or 2023 article that OIC is definitely available, and don’t assume based on a 2024 source that it’s definitely not—verify the current status. SBA policies change, and what was true six months ago might not be true today.
What Are the Requirements to Submit an EIDL Offer in Compromise?
When OICs for EIDL loans are available, certain requirements typically apply. Understanding these helps you assess whether you’d qualify and what you’d need to prepare:
Business closure (traditionally required). Historically, the SBA required that the business be closed and liquidated before considering an OIC for business loans. The theory was that if the business is still operating and generating income, those revenues should go toward repaying the loan. However, recent rule changes have reportedly allowed businesses that are still open to file OICs in some circumstances. The current requirements around business closure for EIDL OICs are unclear, which is another reason to verify directly with the SBA.
Demonstration of inability to pay. You must prove that you lack the assets and income to repay the full debt. This requires comprehensive financial disclosures showing your personal financial situation (personal financial statement, tax returns, bank statements, asset valuations) and business financial situation if the business still exists. The SBA needs to see that repaying the full amount is genuinely impossible, not just inconvenient.
Personal guarantee consideration. For EIDL loans over $200,000 where personal guarantees were required, your personal financial situation is critical to the OIC evaluation. The SBA will look at your personal assets, income, and expenses to calculate what they could collect from you personally. For loans under $200,000 without personal guarantees, the analysis focuses on business assets and what limited collection options exist against the business.
Reasonable offer amount. Your proposed settlement needs to be reasonable in relation to your RCP. Offering $5,000 to settle a $250,000 debt when you have substantial personal assets won’t be accepted. The offer should reflect a realistic assessment of what the SBA could collect, plus perhaps a bit more to make acceptance attractive. Some sources suggest offering slightly above the calculated RCP improves acceptance chances.
Lump sum or short payment plan. Most OICs involve a lump sum payment—you pay the settlement amount in full within a short period (30-90 days typically) after acceptance. Some OICs allow short payment plans (paying the settlement over 6-12 months), but the SBA prefers lump sums because there’s no risk of default on the payment plan. If you’re proposing a payment plan, you need to explain why you can’t pay a lump sum and show that you can reliably make the planned payments.
Complete, accurate financial disclosure. The OIC package requires extensive documentation—personal and business tax returns (usually 3 years), personal financial statements, business financial statements, bank statements, proof of income, asset valuations, debt lists, expense documentation. Everything needs to be complete, accurate, and consistent. Missing documents or inconsistencies raise red flags and lead to rejection.
How Do I Calculate What to Offer in an EIDL OIC?
Calculating a reasonable offer amount requires determining your reasonable collection potential. Here’s how to think through this:
Liquidation value of non-exempt assets. List all assets you own (personal and business)—real estate, vehicles, equipment, inventory, investment accounts, cash, etc. Then determine the liquidation value (what they’d sell for quickly, not market value) of the non-exempt portion. Certain assets are protected by exemptions—homestead exemptions protect some home equity, retirement accounts have protections, etc. The liquidation value of your non-exempt assets is the first component of RCP.
Future income stream. Calculate your disposable income (income after necessary living expenses and legally required deductions). Assume the SBA could garnish 15% of this disposable income. Project this over a reasonable collection period—typically 3-5 years. For example, if you have $2,000/month in disposable income, 15% is $300/month. Over 48 months, that’s $14,400. This is the second component of RCP.
Business income potential. If your business is still operating, estimate what income it could generate that would be available for debt repayment over the collection period. This is harder to calculate because business income fluctuates, but make a reasonable estimate based on recent performance.
Add components to get RCP. Non-exempt asset value + future income stream + business income potential = reasonable collection potential. This is roughly what the SBA could collect over several years if they pursued all available remedies.
Offer amount. Your offer should be close to the RCP. Some advisors suggest offering 80-100% of your calculated RCP, or slightly more. The idea is to give the SBA a reason to accept—they get the RCP amount (or close to it) immediately rather than over years of collection efforts. Offering way below RCP gets rejected because the SBA believes they’ll collect more by pursuing you.
This calculation is complex and requires honest, realistic assessment of your finances. Many borrowers work with attorneys or consultants who specialize in OICs to ensure the calculation is done correctly and the offer is properly structured.
What’s the Process and Timeline for an EIDL OIC?
If EIDL OICs are currently available, the process typically works like this:
Step 1: Prepare financial documentation. Gather all required documents—tax returns, financial statements, bank statements, asset valuations, debt lists, income documentation, business records if applicable. This is often the most time-consuming part because the documentation requirements are extensive.
Step 2: Calculate RCP and determine offer amount. Analyze your financial situation to calculate reasonable collection potential, then determine what you can realistically pay and what offer amount makes sense.
Step 3: Prepare and submit OIC proposal. Draft a formal OIC proposal letter explaining your situation, demonstrating inability to pay the full debt, proposing your settlement amount, and attaching all supporting documentation. Submit this to the SBA (the specific submission method and address would depend on current procedures).
Step 4: SBA reviews and may request additional information. The SBA reviews your OIC package, verifies your financial disclosures, calculates there own RCP, and evaluates whether your offer is reasonable. They might request additional documentation or clarification. This review process can take several months.
Step 5: SBA issues decision. The SBA either accepts your offer, rejects it, or counters with a different amount. If accepted, you’ll receive formal acceptance and instructions for paying the settlement amount. If rejected, you’ll receive explanation of why and might have opportunity to submit a revised offer. If they counter-offer, you can accept the counter, reject it, or negotiate further.
Step 6: Pay settlement amount. Once terms are agreed and you receive formal acceptance, you pay the settlement amount according to the agreed terms (lump sum or payment plan). Once paid, you receive documentation that the debt is satisfied and the remaining balance is discharged.
Timeline: The entire process from submission to final decision typically takes 6-12 months, sometimes longer if there are complications or requests for additional information. During this period, collection actions are usually suspended—the SBA won’t garnish wages or pursue enforcement while an OIC is under consideration.
What Are My Chances of Getting an EIDL OIC Accepted?
Success rates for properly structured OICs vary, but sources suggest around 35% of EIDL OIC submissions are accepted when the program is available. This means roughly one-third succeed, two-thirds are rejected. However, these statistics need context:
Well-prepared OICs have better odds. The 35% acceptance rate includes all submissions, including those that are poorly prepared, incomplete, or unrealistic. OICs prepared with professional help (attorneys or consultants experienced in SBA OICs) have higher success rates because they’re properly structured, fully documented, and based on reasonable RCP calculations.
Offer amount matters. OICs that offer close to or above the RCP are much more likely to be accepted than lowball offers. If you offer 90% of your RCP, chances are good. If you offer 20% of your RCP when you clearly have ability to pay more, rejection is almost certain.
Financial circumstances matter. Borrowers who genuinely have no assets, limited income, and no realistic ability to repay have stronger OIC cases than borrowers with substantial assets who just don’t want to pay. If your financial situation truly demonstrates insolvency or very limited collection potential, your OIC is more likely to succeed.
Documentation quality matters. Complete, accurate, well-organized financial documentation improves chances. Missing documents, inconsistencies, or evidence of hidden assets lead to rejection.
Even with good preparation, OICs are never guaranteed. The SBA has discretion to accept or reject, and even reasonable offers sometimes get rejected for reasons that aren’t entirely clear. But if you meet the requirements, prepare thoroughly, and offer a reasonable amount, you have a fighting chance.
What Are the Tax Implications of Settling My EIDL Debt?
This is critical and often overlooked: when debt is forgiven or settled for less than the full amount, the cancelled portion is potentially taxable income under Section 108 of the Internal Revenue Code. This is called “cancellation of debt income” or COD income. Here’s how it works:
If you owed $200,000 on your EIDL loan and settled it for $40,000, you’ve had $160,000 of debt cancelled. The IRS treats that $160,000 as income that you have to report on your tax return for the year the debt was settled. Depending on your tax bracket, this could create a tax liability of $30,000-$50,000 or more—which partially defeats the purpose of settling the debt if you end up owing a huge tax bill.
However, there are important exceptions that might protect you:
Insolvency exception. If you were insolvent at the time the debt was settled—meaning your total debts exceeded your total assets—you can exclude the cancelled debt from income to the extent of your insolvency. For example, if you had $300,000 in debts and only $150,000 in assets (making you $150,000 insolvent), and $160,000 of EIDL debt was cancelled, you could exclude $150,000 of the cancelled debt from income. You’d only have to report $10,000 as taxable income. This exception often applies to borrowers settling SBA debts because if they could afford to pay, they wouldn’t need to settle.
Bankruptcy exception. If debt is discharged in bankruptcy, the cancelled amount is excluded from income. You don’t owe taxes on debt eliminated through bankruptcy.
When the SBA accepts your OIC and the debt is settled, they’ll issue you IRS Form 1099-C showing the amount of cancelled debt. You must report this on your tax return and claim any applicable exceptions. Consult with a CPA or tax attorney about the tax implications before finalizing an OIC—you need to understand what tax liability you’re creating and whether you qualify for exceptions.
What If OIC Isn’t Available—What Are My Alternatives?
If EIDL loans aren’t currently eligible for OIC, or if your OIC is rejected, you still have options:
Extended repayment terms. Request that the SBA extend your repayment period, reducing monthly payments by spreading the debt over more years. This doesn’t reduce what you owe, but makes payments manageable.
Hardship accommodations. Request temporary payment reductions or deferment based on financial hardship. While not as permanent as OIC, these provide relief.
Structured payment plan. Negotiate a voluntary repayment plan with reduced monthly payments that you can afford, even if it takes longer to repay.
Business closure and walking away (loans under $200K). If your EIDL loan is under $200,000 with no personal guarantee and your business is an LLC or corporation, you might be able to close the business and walk away from the debt without personal liability.
Bankruptcy. Personal bankruptcy might discharge EIDL debt depending on your jurisdiction and circumstances. This is a last resort but an option if you’re drowning in debt from multiple sources.
Talk to an SBA Debt Resolution Attorney Today
Offers in compromise can be powerful tools for settling EIDL debt for far less than you owe, but they’re complex, require extensive documentation, and availability for EIDL loans is currently uncertain. Navigating this process without professional help often leads to rejection, while well-prepared OICs with attorney assistance have much better success rates.
Our firm has extensive experience with SBA offers in compromise, including EIDL OICs. We stay current on SBA policies and know whether OIC is currently available for EIDL loans. We’ve successfully negotiated settlements that saved clients hundreds of thousands of dollars. We know how to calculate reasonable collection potential, structure offers that are likely to be accepted, prepare complete financial documentation, and negotiate with the SBA to get the possible settlement.
If your struggling with EIDL debt you can’t repay and hoping to settle for less, contact us today for a free consultation. We’ll assess whether OIC is currently available, evaluate whether you’d likely qualify, estimate what settlement amount might be realistic, explain the tax implications, and advise on the strategy for your situation. The consultation is free and confidential, but it could save you tens or hundreds of thousands of dollars if OIC or another settlement option is viable.
Don’t struggle with impossible debt when settlement might be possible. Call us now to explore your options.