SBA Offer in Compromise in Practice
5 Parts of a Credible Submission

The offer must explain why the proposed payment is recoverable and the remaining balance is not, a distinction that requires records long before it requires persuasive language.

An SBA offer in compromise concerns a particular loan and particular obligors, and credible submissions share the same five parts. Eligibility first, obligor records second, collateral history third, payment source fourth, and compliance posture last. Papers persuade where adjectives cannot.

Confirming the Process Fits the Account

The agency requirement letter, last updated August 11 2026, admits compromise only after liquidation of all collateral under agency guidelines, and the Commercial Loan Service Center guidance places that remedy among post servicing actions rather than ordinary servicing. The door is open. The threshold is liquidation.

Other programs allow earlier discussion, though the exceptions matter less than owners hope. COVID EIDL balances cannot enter through this door at all, because the agency states those loans cannot be forgiven. Simply identify the note, the program, the lender, and the latest collection notice before paying anyone for advice about eligibility.

Vendors who advertise SBA forgiveness as a product should be asked which program, which stage, and which officer, in that order. The confidence of that pitch is peculiar beside the plain text of the requirement letter. Three deficiency notices had arrived before one owner we advised called counsel (the count is approximate; files vary), and each notice had named a different office.

Financial Records for Each Obligor

Within days of the first Treasury letter, the owner should start assembling records at the level the agency actually examines. The submission calls for Form 1150 with Form 770 or a business financial statement for each person or entity seeking compromise, so the company books alone never complete the package where a guaranty exists.

The guarantor (who, it should be noted, had pledged the same equipment under two earlier loans that both ended in workout) must document personal capacity with the same rigor as the business. Separate business assets from personal assets, distinguish ownership from pledged collateral, and record liabilities in enough detail to show competing claims on the same property. A forecast may contain uncertainty, but an existing balance should come from the statement rather than from optimistic recollection.

Have counsel review and analyze transfers that preceded liquidation. I have yet to see a bare promise move a federal file, though bare promises arrive daily. The objective is to protect and preserve an accurate account of capacity, because the decision maker tests every number offered with extremely close attention against bank records the owner may have forgotten.

Collateral History and Proceeds

Credibility, in the end, is an arithmetic virtue. The section that proves what the collateral produced decides whether the section that proposes payment gets read with interest or with skepticism.

Reconstruct what security existed, how disposition occurred, who authorized the sale, and where each dollar of proceeds went. Seldom does a file fail for offering too little; files fail for accounting for too little. Where the agency required approval for a sale, the authorization belongs beside the closing statement, and any gap between appraised value and realized price needs an explanation grounded in documents rather than memory. Collectors press for numbers in order to fix a balance before the owner understands the program.

A submission without bank statements resembles a map drawn from memory by someone who never visited the street: confident, detailed, and wrong at the turns that matter. Nobody reads the requirement letter until the requirement applies to them. Read it now, while the timetable is still extremely flexible.

Money With Strings Attached

The payment source needs the same scrutiny as the deficiency itself.

Money with conditions is not money until the conditions clear.

Funds offered by a relative or an investor often carry terms, and those terms must be reconciled with the proposed release before submission rather than explained afterward. State the amount offered, or withheld, with precision, and identify who controls disbursement if approval arrives. An offer of zero will not be considered, and an offer contingent on events the owner cannot control reads as postponement dressed as proposal.

Settlement Assistance and Independent Counsel

Delancey Street operates as a debt settlement company. Legal work goes to independently licensed counsel. The company offers a free confidential initial review for businesses confronting MCA distress, and the Delancey Street initial review helps test whether a negotiated resolution fits the accounts alongside any agency submission.

Confirm in writing which obligations fall within the engagement, because company descriptions of debt scope differ and agency procedure changes. Program pages change; verify the current letter before filing. Counsel should ensure the proposal addresses every obligor whose liability should end and ensure disputed positions receive separate treatment.

Resist the urge to supplement the package with argument, even briefly, where a document would serve better. The IRS guidance on canceled debt treats forgiven amounts as taxable income subject to stated exclusions, so the after tax arithmetic belongs in the decision before the offer goes out. Return to the threshold before signing anything; every page submitted will be weighed against the request.

A first conversation with Delancey Street costs nothing and assumes nothing; it is the beginning of a diagnosis, with independent counsel handling the legal work. Whether this framework holds for 504 debenture files with CDC involvement is a question these pages cannot answer. Files that prove what cannot be recovered are the files that settle.