A defaulted SBA loan does not sit still. It moves from your lender to the SBA, and from the SBA to the Treasury Department — and your options are widest at the beginning of that journey, not the end. If you are holding a 60-day demand letter, that is the widest your options will ever be again.
You are on the hook personally, and that is the whole problem. Every SBA 7(a) and 504 loan is backed by an owner's personal guarantee. The guarantee protects the lender and the government — never you — which is why the business closing does not end the debt.
Anonymised, and deliberately without numbers. What matters here is the posture — where the file sat, who the counterparty was, and what that changed about the approach.
Two guarantors with different financial pictures, which meant two separate financial statements and a coordinated pair of offers rather than one. Package submitted while the loan was still with the lender.
Wage garnishment proceeding underway. The fight was the hearing, not a compromise — the SBA had already given the debt away.
Large balance, no non-exempt equity. The exempt assets were addressed head-on in the narrative rather than left for the reviewer to trip over.
Illustrative summaries of matters this firm has handled, with identifying details removed. Prior results do not guarantee or predict a similar outcome in any other matter.
SBA and lender correspondence runs on fixed response windows. Missing one rarely ends the matter, but it does narrow what can be negotiated later.
An Offer in Compromise is decided on documents — financials, assets, income, hardship. A thin package is the most common reason a reasonable offer is refused.
Compromise is a different conversation with the SBA than with the Treasury. Getting there first is most of the work.
Settle it, restructure it, or discharge it. Which one is available depends on whether the business is still trading, what collateral was liquidated, and — more than anything — how far down the collection road the file has already travelled.
Borrowers assume settlements are a percentage — thirty cents on the dollar, ten cents, whatever they read somewhere. That is not how this works. The SBA calculates what it could actually collect from you through enforced collection. That figure is your reasonable collection potential, and it has two halves.
Not what they are worth — what a forced sale nets after the mortgage, the liens and the costs of sale. And exempt property does not count at all. Under Texas law your homestead is protected regardless of value, your retirement accounts are protected in full, and a vehicle per licensed driver in the household is protected. For most people who have genuinely lost a business, this half of the calculation is close to zero.
What a garnishment would produce, projected forward over a period of years. If your income is limited or fixed, so is this number.
Add the two together and that is the floor. An offer below it gets rejected. An offer above it is a serious proposal, and it does not matter whether it is two percent of the balance or forty. A borrower with a large balance, no equity and modest income is in a better position than a borrower with a small balance and a paid-off rental property — which is the opposite of what almost everyone assumes.
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The SBA does not compromise with going concerns. If the business is viable the conversation is a workout, or a Subchapter V if the debt load is genuinely unsustainable.
Or the money did not go where the application said it would. This is not a negotiating problem, and no package fixes it. It changes the entire posture of the case and it needs to be discussed with a lawyer early, in confidence, before anything is submitted to anyone.
Some do. The lender has to recommend the compromise for the SBA to review it, and there is no way around a refusal.
Then the number the SBA computes is close to the balance, and a compromise costs you the same as paying it. Better to know that now.
We would rather tell you this on the phone than three months into a package.
Bring the note, the guarantee, any demand letters and a current picture of the business. The letters tell us where in the process you are.
We read the note, the guaranty, the 60-day demand letter and any notice that the SBA has purchased the guaranty. Those documents tell us who your creditor actually is right now, what the guaranty commits you to, and what collateral is left.
An SBA compromise is not a phone call. It is a package: Form 1150 signed by every obligor asking for release, a Form 770 financial statement for each of them, a signed 4506-C so the SBA can pull your tax transcripts directly, two years of returns, three to six months of bank statements, and a written explanation of how the business ended. The numbers on the 770 get cross-checked against the returns and the bank statements. Packages fail on that reconciliation more than on the offer amount.
Submission and back-and-forth with the lender, the SBA servicing centre, or both. Timelines here are the agency's, not ours.
An accepted compromise with a written release, a restructured loan, or a discharge — whichever the file supports.
There are three clocks running, not one. You have 60 days to answer the demand letter — miss it and you have not lost the right to compromise, but you have lost the leverage of a live, timely response. Guaranty purchase changes who decides. And at roughly 120 days delinquent, federal law requires the agency to refer the debt to Treasury for cross-servicing, after which the SBA no longer controls it and cannot settle it.
The lender pursues you and the collateral under the note and the guaranty. While the lender still holds the loan, the lender decides whether a compromise goes up to the SBA at all.
The SBA pays the lender's guaranteed share and becomes the creditor pursuing you. The decision-maker changes here, and this is the part nobody explains.
The window in which an Offer in Compromise is a real and realistic conversation, decided by the servicing centre directly.
At roughly 120 days delinquent the debt is referred for cross-servicing. The SBA has given it away and can no longer settle it.
Federal offset of tax refunds and certain benefits, plus administrative wage garnishment that needs no Texas court. Collection costs are added to the balance.
Who decides changes as it moves. While your lender still holds the loan, your lender decides whether to send a compromise up. The SBA will not review an offer the lender declines to recommend, and there is no appeal from that. Once the SBA buys the guaranty, you are dealing with the SBA servicing centre directly and the lender is out of it. Once it goes to Treasury, nobody at the SBA can settle it — the agency has given the debt away. Three different counterparties, three different sets of leverage, and most borrowers do not know which one they are talking to.
Guarantees, discharge, and the business side.
Bring the note and the guaranty, the 60-day demand letter, anything from Treasury, and a rough picture of what you own and what you owe. We will tell you which routes are still open and which have already closed. The consultation is free.
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