SBA Form 1150 is the Offer in Compromise form you use to propose settling a defaulted Small Business Administration loan for less than the full balance. The instructions for SBA Form 1150 come down to three tasks on the form itself, a supporting package of financial documents, and a submission route that goes through your lender rather than directly to the SBA. Getting an offer accepted depends on how well your numbers hold up and whether you can show the SBA that taking a reduced payment now beats chasing you for years.
Before You Can File
You cannot submit Form 1150 while collateral still secures the loan. Business assets, equipment, inventory, and any other pledged property must already be sold and the proceeds applied to your balance. If any collateral remains that could be liquidated to reduce the debt, the offer will be rejected. The form itself states that it may be submitted only after liquidation of all collateral.1U.S. Small Business Administration. Offer in Compromise
You also need to show genuine inability to pay the remaining balance. The SBA will examine your income, remaining personal assets, age, health, and future earning potential. If the agency concludes you could eventually repay the full debt, even over a long period, expect a denial. The compromise process is a last resort after other collection methods have been exhausted, not a shortcut for borrowers who would prefer to pay less.
Personal guarantors are on the hook here too. If you signed as a guarantor rather than the primary borrower, you still need to submit your own Form 1150 package. A lender cannot release any party’s liability on an SBA loan without the SBA’s written approval.
The Documents You Submit With Form 1150
Form 1150 by itself is not a complete offer. Each person seeking settlement must submit an individual package containing:
- SBA Form 1150, the offer and justification, signed by the person proposing the settlement.
- SBA Form 770, a detailed financial statement of the debtor that the SBA uses to evaluate your ability to repay and to judge whether the compromise amount is appropriate.2Federal Register. SBA Form 770 Financial Statement of Debtor
- IRS Form 4506-C, which authorizes the SBA to pull your tax transcripts directly from the IRS to verify what you report on Form 770.
- Your two most recent personal and business tax returns.
Gather current bank statements, pay stubs, and documentation of any remaining personal assets, including retirement accounts and home equity. The SBA looks at everything you own, not just what was tied to the business. Discrepancies between your Form 770 and the supporting documents are one of the fastest ways to have an offer rejected.
Filling Out Form 1150
The form asks for three things: a dollar amount, the source of that money, and a justification for why the SBA should accept less than what you owe.
The Offer Amount
State the exact dollar figure you are prepared to pay for a full release of liability. This is not a starting point for negotiation. The SBA judges whether the number is consistent with your financial picture, so a lowball figure draws a denial while an amount larger than your documents support raises questions about hidden assets. The offer should represent the maximum you can realistically pay, backed by what your Form 770 and tax returns show.
Source of Funds
Say plainly where the money is coming from. Common sources include savings, a loan from a family member, proceeds from selling personal property, or a combination. Vague answers invite follow-up questions that slow the review. If a relative is lending you the money, say so, and be ready for the SBA to ask whether that relative is also an obligor on the loan.
Justification
This section is where most offers succeed or fail. You need to explain why accepting your reduced amount serves the government’s interest better than continuing collection. Strong justifications commonly rest on advanced age, permanent disability, chronic illness, a documented and lasting reduction in earning capacity, or a financial situation so depleted that collection costs would exceed any realistic recovery. Stating that you cannot afford the full balance is not enough on its own. Connect the financial data to a narrative that makes the math obvious: given what you earn and own, the SBA will recover more by accepting your offer now than by pursuing you for years.
When listing assets and liabilities, use current fair market values, not what you originally paid. The SBA cares about what property could sell for today, and inflating or deflating values will undermine your credibility with the reviewing officer.1U.S. Small Business Administration. Offer in Compromise
Where to Send the Package
The completed package goes to your original lender, not directly to the SBA. The lender conducts an initial review and, if the proposal looks reasonable, forwards it to the appropriate SBA servicing center. Commercial loan servicing is handled in Fresno, California, and disaster loan servicing operates out of Birmingham, Alabama and El Paso, Texas.3U.S. Small Business Administration. Loan and Guaranty Centers
Send everything by certified mail with a return receipt, or through any secure electronic portal your lender provides. You want a verifiable record that the package was delivered and when. The SBA should acknowledge receipt in writing once the offer is under review.
Review typically takes several months. An SBA officer may request additional documentation or ask clarifying questions about your finances during that time. Respond quickly and completely, because delays on your end extend the timeline and can suggest your financial disclosures were incomplete.
If Your Offer Is Accepted
An accepted offer produces a written agreement specifying the settlement amount and a payment deadline. The SBA generally expects a lump-sum payment within a set timeframe, commonly around 60 days from the approval date. Installment arrangements may be available in some cases, but the SBA prefers to close these out quickly.
If you fail to pay the agreed amount by the deadline, the settlement can be voided entirely. The full original debt returns, and you lose the leverage you had. Have the funds secured before you file the offer, not after you receive an acceptance letter.
If Your Offer Is Denied
A denial is not necessarily the end. If you believe the SBA made a factual or legal error, you can file a petition for reconsideration through the SBA’s Office of Hearings and Appeals within 10 days of the decision. The petition must identify a specific error, not simply restate your original arguments.4Small Business Administration. OHA Appeals Platform
You can also submit a new offer with updated financial documentation if your circumstances have changed. A second offer built on the same facts and same amount will not fare any better, so refile only if something material has shifted, such as a job loss, a medical diagnosis, or a further decline in asset values.
If you do nothing, the debt keeps accruing and is eventually referred to the U.S. Treasury for collection. Federal law requires that transfer once a debt is 180 days delinquent.5Office of the Law Revision Counsel. 31 USC 3711 – Collection and Compromise Once your debt reaches Treasury, federal and state tax refunds can be intercepted, Social Security benefits can be reduced, and vendor payments to you can be seized under the Treasury Offset Program, with Treasury’s own collection fees added on top.6Bureau of the Fiscal Service. What Is the Treasury Offset Program? Filing an Offer in Compromise before that referral is far more favorable than waiting.
Plan for the Tax Bill on the Forgiven Amount
A successful compromise creates a new problem. The forgiven portion of the debt is generally treated as taxable income. If you owed $200,000 and settled for $50,000, the IRS treats the remaining $150,000 as income in the year the debt was cancelled. You will typically receive a Form 1099-C from the creditor reporting the cancelled amount.7Internal Revenue Service. Topic No. 431, Canceled Debt – Is It Taxable or Not?
The insolvency exclusion is the main escape valve. If your total liabilities exceeded the fair market value of your total assets immediately before the debt was discharged, you were insolvent, and you can exclude the forgiven debt from income up to the amount of that insolvency. If your liabilities were $10,000 more than your assets, for example, you can exclude up to $10,000 of the forgiven debt. Claim the exclusion by filing IRS Form 982 with your tax return.8Internal Revenue Service. Instructions for Form 982
Most borrowers pursuing an SBA compromise are already deeply insolvent, so many qualify to exclude all or most of the forgiven amount. But you have to actually file Form 982. Skip it and the IRS will treat the entire 1099-C amount as taxable income and send you a bill. Where the forgiven debt came from a business, the reporting line depends on the activity: sole proprietorship debt on Schedule C, farm debt on Schedule F, rental property debt on Schedule E.9Internal Revenue Service. Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments Working with a tax professional during the year your settlement closes is worth the cost.
Effect on Future Federal Borrowing
Even after your SBA debt is settled, the default appears in the Credit Alert Verification Reporting System (CAIVRS), a shared federal database used by the SBA, HUD, USDA, and VA to screen applicants for new federal credit.10U.S. Department of Housing and Urban Development. Credit Alert Verification Reporting System (CAIVRS) Federal law bars a person with an outstanding delinquent federal debt from obtaining new federal loans or loan guarantees until the delinquency is resolved, with disaster loans as one of the few exceptions.11Office of the Law Revision Counsel. 31 USC 3720B – Barring Delinquent Federal Debtors From Obtaining Federal Loans
Paying your agreed settlement resolves the delinquency, but the CAIVRS record can take weeks or months to update after the agency processes your payment. If you plan to apply for an FHA mortgage, VA loan, or new SBA loan after settling, confirm that your CAIVRS record has been cleared before you submit the application.