Thousands of small businesses have benefited from SBA loans by being able to pay their staff, maintain operations, and survive difficult times. However, as the relief subsides, many people are faced with the challenging question: How can we repay this money?

This blog specifically focuses on SBA loans issued during the COVID-19 pandemic, especially Economic Injury Disaster Loans (EIDL), which were often around $150,000. These loans helped keep businesses afloat, but now many borrowers are seeking clarity on whether they qualify for forgiveness and what to do if they can’t repay in full.

Breaking Down SBA COVID EIDL Loan Settlement

What Is the COVID EIDL Loan Forgiveness or Settlement?

While COVID Economic Injury Disaster Loans (EIDL) were not originally designed for forgiveness, the SBA has allowed certain borrowers, especially those with loans under $150,000, to pursue hardship-based settlements through a process called an Offer in Compromise (OIC).

In simple terms, this means if your business is no longer operational or you're in significant financial distress, the SBA may accept a reduced lump-sum payment to settle the loan, clearing the remaining balance and releasing any personal guarantees.

This settlement is not automatic and requires formal documentation and justification to be considered.

The Process of Applying for a COVID EIDL Settlement (OIC)

Here’s how the process generally works:

Gather your financial documents

• Profit & loss statements
• Bank statements
• Business closure documentation (if applicable)
• Personal financial statement

Ensure you're in default

• Most settlement options are only available after your loan is at least 90 days delinquent or has entered official default status.

Contact the SBA’s Loan Servicing Center

• Request settlement information and the Offer in Compromise packet.

Prepare and submit your OIC

• Include a written explanation of financial hardship
• Propose a reasonable settlement amount (based on your assets and income)
• Submit required forms, including SBA Form 1150 and SBA Form 770

Await SBA review

• SBA will evaluate your financial situation, the reason for default, and the proposed settlement.
• Approval may take 60–120 days, and acceptance is not guaranteed.

Common Mistakes to Avoid

When pursuing an EIDL settlement, be careful to avoid:

• Submitting an OIC before the loan is in default
• Offering an unreasonably low amount without justification
• Failing to document a business closure or hardship
• Leaving out required forms like the SBA Form 770
• Assuming SBA will forgive without liquidation efforts (for business assets)

Avoiding these mistakes significantly increases your chances of approval and can help you settle large SBA debts, including $150K EIDL loans, for a fraction of what’s owed, under the right circumstances.

Why SBA Loan Forgiveness and Debt Solutions Matter

The Small Business Administration has several loan programs that aim to support growth, protect jobs, and help businesses recover from disasters. Popular loans include:

• 7(a) Loans – for working capital and business expansion
• 504 Loans – for major asset purchases
• EIDL (Economic Injury Disaster Loans) – for emergencies
• PPP (Paycheck Protection Program) – for payroll support during COVID-19

COVID EIDL loans, unlike PPP, were not designed for forgiveness. However, if you meet specific hardship criteria, you may be able to settle the loan through the SBA's Offer in Compromise (OIC) program.

However, not all SBA loans are eligible. Furthermore, even in cases where a pardon is granted, it necessitates close attention to usage guidelines, documentation, and timelines.

Missing deadlines or ignoring these choices could result in thousands of dollars in lost relief or, worse, loan default.

Are You Eligible for the COVID EIDL Settlement (OIC)?

Before diving into forgiveness or debt settlement strategies, it’s important to understand which programs you may qualify for.

SBA Offer in Compromise (OIC) Eligibility – For EIDL or 7(a) Loans

If your loan is not forgivable (like an EIDL) and you can’t repay in full, you may be eligible to settle your SBA loan through an OIC.

You qualify for an SBA OIC if:

• Your loan is in default (90+ days past due or you’ve received a demand letter)
• Your business has closed, and assets have been liquidated
• You are experiencing significant financial hardship
• You are not in bankruptcy
• You can submit full documentation:
  • SBA Form 1150 (Offer in Compromise)
  • SBA Form 770 (Financial Statement)
  • A signed hardship letter explaining your situation
  • Two years of personal and business tax returns
  • Proof of income, assets, and debt statements

For the complete list of required documents and detailed instructions, refer to the official SBA Offer in Compromise Requirements Letter.

If accepted, your remaining SBA loan balance may be legally settled, your account closed as 'Compromise/Closed', and you’ll be removed from Treasury Offset programs.

Smart SBA Debt Solutions

COVID EIDL loans are not forgivable, but you may qualify to settle them through the SBA’s Offer in Compromise program. Not every SBA loan qualifies for forgiveness. And sometimes, even with the best intentions, your business may fall behind on payments. That’s when debt resolution strategies become essential.

Understanding Debt Settlements

If you can’t repay your loan in full, the SBA may allow a settlement, where you negotiate a smaller payment that satisfies your debt.

The most common approach is an Offer in Compromise (OIC). You propose to pay part of what you owe based on your financial condition. If accepted, your remaining loan balance is cleared, and you're released from personal guarantees.

This is especially helpful for:

When to Consider Debt Solutions

Debt settlement is often the better option when:

• You’ve missed multiple payments
• Cash flow is too tight to continue regular installments
• You’re facing bankruptcy or potential legal action
• Loan forgiveness isn’t available

In these situations, continuing to ignore the loan can damage your business credit or lead to asset seizure, while a negotiated settlement can give you breathing room.

Key Steps to Smart SBA Debt Management

If you’re considering SBA debt relief, here’s what you should do:

• 1. Review your loan teams<
  Know exactly how much you owe, the interest rate, and your repayment status.
• 2. Evaluate your financial health
  Prepare updated balance sheets, income statements, and cash flow forecasts.
• 3. Work with a debt expert
  An experienced advisor can help you build a stronger case and handle communications with the SBA.
• 4. Submit your Offer in Compromise
  Include financials, proof of hardship, and a reasonable repayment offer.

The Benefits of Professional Help

Debt negotiations and forgiveness processes aren’t one-size-fits-all. Mistakes or missed details can result in rejection or delays that harm your business.

Here’s why working with a tax professional or financial advisor can help:

• Ensure your application is complete and accurate
• Speed up SBA or lender response times
• Avoid common pitfalls
• Negotiate better terms on your behalf

One small business in California, for example, had $200,000 in 7(a) loan debt and managed to settle for just $85,000 after their accountant helped submit an Offer in Compromise backed by detailed financials and a hardship letter.

Quick Tips for Success

• Keep Records : Every SBA loan activity should be documented, including payments, communication, and financial changes.
• Stay Ahead : Don’t wait for a default notice. Reach out early.
• Use Free Help : SBA offers helplines, and local SCORE chapters offer free business mentoring.