Can an SBA loan be settled for less than you owe?
Short answer
Sometimes. SBA's lender page describes an offer in compromise, typically after collateral is liquidated. A lender generally needs SBA's prior written consent. A compromise counts as a loss under the Prior Loss rule. Sources: 13 CFR 120.536; SOP 50 10 8.1, Sec. A, Ch. 1, Para. E.
Sometimes, and it is not your decision alone. SBA's lender page, in its 504 section, describes an offer in compromise. It calls this a monetary offer typically made at the end of liquidating business and other worthwhile assets (read November 8, 2026).
Who must approve
A lender or Certified Development Company (CDC) generally needs SBA's prior written consent before it compromises the principal balance (13 CFR 120.536(a)(3)). A Supplemental Guarantee Agreement or CDC agreement can provide otherwise. A non-PCLP CDC also needs consent to release a claim against a borrower or guarantor (13 CFR 120.536(b)(4)).
How it affects you later
- The SOP defines a loss to include any amount compromised for less than the full amount (Sec. A, Ch. 1, Para. E, about p. 24).
- A Prior Loss bars a new 7(a) or 504 loan unless it is later fully satisfied or waived.
- The bar can reach other businesses you own, operate or control.
Guarantors
A lender may compromise or settle with the borrower or a guarantor without releasing other guarantors (SBA Form 148, para. 4). Get any release in writing.
What is not covered here
SOP 50 57 sets the compromise procedure for 7(a) loans. It is not among the sources behind this page. The sources here do not state how SBA sets an acceptable offer. Talk to an attorney before you make one.
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