Offer in Compromise for EIDL Loan: How to Settle for Less.

Yes, an EIDL offer in compromise is a negotiated settlement that amounts to less than the amount the borrower owes on their EIDL loan. This settlement allows the borrower to settle the balance by paying a lump sum or monthly payments that are significantly less than what they owe. An EIDL settlement is not automatic; rather, it requires a borrower to prove they are unable to pay their balance, that the funds from their EIDL loan were used for approved business purposes, and to show that the SBA has no other means of collecting what is owed. - Can an EIDL offer in compromise actually settle a COVID EIDL for less than the balance?

• Is the COVID EIDL offer in compromise available to borrowers?
• What are the COVID EIDL offer in compromise requirements?
• How can a COVID EIDL borrower apply for an offer in compromise?
• How will I know whether my request for an EIDL offer in compromise is accepted or rejected?
• What are some alternatives to a COVID EIDL offer in compromise?

Are COVID EIDL offers in compromise available?

A comprehensive review of Spodek Law Group’s content does not necessarily reveal a conflict in the information presented. Goldburd refers to the offer in compromise as “This offer is submitted by the undersigned to compromise a claim of the Small Business Administration resulting from a loan to the above borrower which is now fully due and payable and for which I (we) am alleged to be liable. In full settlement thereof I (we) hereby make the following offer:” but Joshi states, “An Offer in Compromise will be considered ONLY AFTER LIQUIDATION of all collateral pursuant to Agency guidelines. COVID EIDLs are not able to be forgiven.”

What are the COVID EIDL offer in compromise requirements?

Neither of these pages discuss the criteria the SBA requires to accept an offer in compromise or the percentage of the total debt that the SBA requires in order to accept a borrower’s offer in compromise.

How can I apply for a COVID EIDL offer in compromise?

Neither page mentions an official SBA form to request an EIDL offer in compromise, but both pages recommend contacting an EIDL defense attorney.

When will I know if my EIDL offer in compromise was accepted or denied?

Neither page mentions the timeframe for requesting an EIDL offer in compromise or for determining whether the SBA accepted the borrower’s request.

What alternatives can a borrower seek to settle their COVID EIDL debt?

In addition to an offer in compromise, borrowers who are unable to repay their EIDL balance have other options including seeking to discharge their debt under bankruptcy law or negotiating with the SBA for a reasonable collection amount.

What should a borrower document before seeking an EIDL balance reduction?

The question of what a borrower should document before seeking a COVID EIDL balance reduction is a multi-faceted issue. First, borrowers must be able to demonstrate their inability to pay their loans from legitimate means. However, neither of these pages explain how the SBA measures this. It is likely that borrowers will have to explain this to the SBA via phone and/or a form. Next, borrowers must be able to demonstrate that the EIDL loan proceeds they have received were used for business purposes. According to Goldburd’s blog: “You can only use the loan proceeds for working capital necessary to carry your concern until resumption of normal operations and for expenditures necessary to alleviate the specific economic injury, but not to exceed that which the business could have provided had the injury not occurred. COVID EIDL loan proceeds also may be used to make debt payments including monthly payments, payment of deferred interest, and pre-payments on any business debts, except pre-payments are not permitted on any loans owned by a Federal agency (including SBA) or a Small Business Investment Company licensed under the Small Business Investment Act.” By extension, “EIDL funds were not to be used for personal purposes or to obtain real property or to refinance indebtedness which was incurred prior to the disaster event is a prohibited use of EIDL funding.”

What are the consequences of misusing COVID EIDL loan funds?

The consequences of misusing loan proceeds can range from repayment being demanded to criminal prosecution. As Goldburd’s blog explains: “If SBA finds a wrongful misapplication, it will cancel any undisbursed loan proceeds, call the loan, and begin collection measures to collect your outstanding loan balance and the civil penalty. If you misapply loan proceeds of any disaster loan under this Part, including an IDAP loan, you may face criminal prosecution or civil or administrative action.” This is obviously a potential risk for the borrower when attempting to negotiate an EIDL settlement.

Can a misrepresentation on an EIDL loan application create criminal liability?

Yes, but this depends on the nature of the misrepresentation. As Joshi’s blog explains, “Except as otherwise provided in this section, whoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully-(1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact; (2) makes any materially false, fictitious, or fraudulent statement or representation; or (3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry; shall be fined under this title, imprisoned not more than 5 years or, if the offense involves international or domestic terrorism (as defined in section 2331), imprisoned not more than 8 years, or both.” If this is the case, then borrowers will need to be aware that this is another issue they must resolve before attempting to seek a COVID EIDL settlement.

What are examples of allowable COVID EIDL expenses?

Goldburd’s blog notes that borrowers who were able to successfully document their usage of EIDL funds to obtain approved COVID EIDL settlements documented their loan proceeds being used to pay for “payroll, rent, and utilities,” among others. Thus, it can be inferred that these are examples of allowable COVID EIDL expenses and it is likely that the SBA will accept these as acceptable loan usage.

How can an unpaid COVID EIDL move from missed payments to Treasury collection?

The process of moving from missed payments to a debt being referred to the Treasury typically depends on the amount owed and the duration of the delinquency. Generally, once a loan is referred to a collection agency, either a private collection agency or the Treasury, the agency will attempt to recover the debt through a combination of requests,phone calls, and other methods. A Treasury collection agency also has the ability to recover federal debt through means such as wage garnishment, tax-refund offsets, and other tools.

Can a private collection agency recover an unpaid COVID EIDL?

Yes, a private collection agency can recover an unpaid COVID EIDL, although it cannot use the same types of tools as a Treasury collection agency. It generally cannot directly seize assets and must instead work with the SBA to recover the federal debt it is tasked with recovering on the government’s behalf.

When does a borrower face the risk of government asset seizure?

While private collection agencies generally cannot directly seize assets, the government can seek to recover unpaid COVID EIDL balances through seizure of assets such as bank accounts and real property. However, this typically requires additional procedural steps and is generally reserved for larger balances.

When will the SBA refer a delinquent COVID EIDL to the Treasury?

A COVID-19 EIDL may be referred to the Treasury Bureau of the Fiscal Service Offset Program after 120 days of delinquency; as of September 2025, SBA also began referring delinquent COVID EIDL debts to the Bureau of the Fiscal Service’s Cross-Servicing Program, subject to applicable eligibility requirements. However, if you have an unpaid COVID EIDL balance, you should speak with an EIDL defense attorney immediately. This is particularly important if you need to negotiate an EIDL settlement, as delaying your request could limit your options.

Is there a guaranteed opportunity to seek a COVID EIDL settlement before a loan is referred to the Treasury?

Our review of these pages did not identify a guaranteed window for requesting a COVID EIDL settlement before an unpaid loan is referred to the Treasury. Consequently, borrowers who believe they may qualify for an offer in compromise or another form of loan forgiveness should reach out to an EIDL defense attorney promptly. An attorney can assist the borrower with contacting the SBA, demonstrating loan usage, and determining whether an offer in compromise is the right approach or if there are better alternatives.

When can business closure, personal liability, or bankruptcy change the EIDL collection analysis?

Does closing a business automatically eliminate a borrower’s obligation to repay the SBA for an outstanding COVID EIDL?

In many cases, no. If a borrower’s COVID EIDL is a funded loan (as opposed to an advance), the borrower’s obligation to the SBA may persist regardless of whether the borrower’s business continues to operate.

Could business bankruptcy change a borrower’s options with respect to an unpaid COVID EIDL?

Yes, bankruptcy in Chapters 11, Subchapter V, and 13, among other possibilities, can provide borrowers with a path to EIDL restructuring as well. However, the specific effect of bankruptcy on a borrower’s EIDL obligations depends on the borrower’s circumstances, and filing bankruptcy does not necessarily mean that a borrower can discharge their EIDL debt.

What should COVID EIDL borrowers know about personal liability for their business’s federal debt?

The extent of a borrower’s personal liability under the COVID EIDL program can also vary. This is partly because the documents that borrowers receive when applying for and accepting COVID EIDL funds are not necessarily clear on the borrower’s potential for personal exposure. However, in addition to general business liability, personal liability is often triggered by loan documents or any personal guarantee that may have been executed. If you have an unpaid COVID EIDL debt and are wondering whether business closure, bankruptcy, or personal liability may affect your options, we strongly recommend reaching out to an EIDL defense attorney. An attorney will have access to all of the documents relevant to the SBA’s collection efforts.

Contact a Federal Criminal Defense Attorney

Nothing here is legal advice, and the details of your case matter. Todd Spodek and Spodek Law Group take federal criminal and white collar cases nationwide, from offices in New York, Brooklyn, Queens and Los Angeles. You can reach the firm at 888 348 8028.