For SBA lenders
Short answer
To obtain SBA approval for a debt compromise, the lender must submit a formal request with a detailed liquidation analysis, justifying why the compromise represents the maximum reasonable recovery for the SBA.
Lenders are required to maximize recovery on defaulted loans. If a debt compromise (settlement for less than the full amount owed) is proposed, the lender must prepare a comprehensive analysis demonstrating that the compromise is more advantageous to the SBA than continuing with full liquidation efforts. This analysis should compare the expected net recovery from the compromise against the estimated net recovery from protracted litigation or further collection actions, considering costs and time.
A lender has a defaulted $400,000 7(a) loan. The borrower offers a $150,000 settlement. The lender's analysis shows further liquidation would cost $50,000 and likely yield only $120,000. The lender submits the compromise offer to the SBA with this detailed justification, seeking approval.
Insider move
Lenders must present a compelling case to the SBA, showing that the compromise is in the best financial interest of the government. Inadequate justification or failure to pursue all reasonable recovery avenues can lead to a repair or denial of the guaranty.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 57 - 7(a) Loan Servicing and Liquidation
Universal Purchase Package (UPP)
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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