If a letter from SBA arrived demanding payment of a defaulted loan and giving you 60 days, take a breath. You have time, and you have options. But this page will not pretend the letter is routine, because it isn’t: of every notice in the entire SBA default timeline, this is the one where responding versus not responding changes what happens most.
What this letter actually is
By the time this notice reaches you, three things have already happened. Your lender liquidated the available collateral. SBA honored its guarantee and paid the lender its share of the loss. And the lender assigned the loan documents, including your personal guarantee, to SBA. The debt now belongs, in substance, to the federal government, and you and any co-guarantors still owe all of it; the guaranty purchase reduced the lender’s loss, not your obligation.
SBA’s servicing rules (SOP 50 57 4) require one final step before the file leaves the agency: prior to referring a debt to the U.S. Treasury for collection, SBA sends the remaining obligors an automated due diligence notice giving them 60 calendar days to pay the loan in full or negotiate an acceptable payment plan. That notice is the letter in your hands.
What the 60 days means, precisely
Federal debt collection law (31 CFR 285.12) requires agencies to transfer eligible delinquent debt to the Treasury’s Bureau of the Fiscal Service for centralized collection. SBA’s 60-day notice is your window to resolve the debt while SBA still owns the decision. The distinction matters because of what SBA’s own rules say happens next: after referral, no one other than Treasury, not SBA and not your old lender, may take further servicing or liquidation action on the loan. The people who can currently say yes to a payment plan or weigh a settlement lose the authority to do so when the window closes.
Two things the 60 days is not. It is not a grace period that pauses anything; the debt and the referral clock exist whether or not you engage. And it is not a negotiation tactic you can extend by ignoring it; there is no second letter with a friendlier deadline behind this one.
The three ways to respond
1. Pay in full, or negotiate a payment arrangement
If you can pay the balance, this is the clean exit: the debt ends, and so does everything downstream, including the referral. If you cannot pay in full but have real income, the letter’s own terms contemplate negotiating an acceptable arrangement with SBA. Any arrangement needs to be realistic on your actual numbers; an agreement you will miss in month three does not restart your 60 days.
2. Submit an Offer in Compromise
This window is, as a practical matter, your last chance to put a settlement in front of SBA itself. The offer goes in on SBA Form 1150, supported by SBA Form 770 (a sworn statement of your personal finances) or business financials, plus recent tax returns. The standards are published and unsentimental: you have no right to a compromise, the amount must bear a reasonable relationship to what SBA estimates it could recover through enforced collection (litigation, garnishment, liens), and SBA’s rules direct it to refer a debt to Treasury rather than accept a nominal offer. Active bankruptcy generally takes the process off the table, and the business generally must be closed or unable to continue.
One warning we will make explicitly: no honest professional can promise you a settlement percentage. SBA evaluates each offer against your specific finances and its specific recovery estimate. Anyone quoting a standard discount is selling something. The full process, including eligibility and the cancellation-of-debt tax consequence, is in the SBA Offer in Compromise guide, and what SBA workout help costs covers what attorneys and consultants charge to prepare one.
3. Do nothing
Silence is also an answer, and SBA treats it as one. At the end of the window the debt is referred to Treasury’s cross-servicing program, where the toolkit expands to federal tax refund offsets, offset of up to 15% of Social Security benefits, wage garnishment of 15% of disposable pay without any court order, private collection agencies, credit bureau reporting, and potential referral to the Department of Justice. Federal law also requires the government’s collection costs to be added to your balance; Treasury’s fee is set as a percentage of every dollar it collects, and it is charged to you, on top of the loan. The complete picture is in what happens when an SBA loan goes to Treasury. Measured against the other two doors, this one has no upside: the same debt, a bigger balance, a less flexible creditor.
What to assemble this week
You do not need to have chosen a door by Friday. You do need to be building the file that every door requires.
- Read the letter twice and calendar the deadline. The 60 calendar days run from the notice, not from when you first feel ready. Note the SBA loan center and contact information on the letter itself.
- Verify and make contact. Confirm the letter against your loan records, and confirm the loan center’s contact details independently on sba.gov before you rely on them. Early contact, even to say a complete response is coming, beats a deadline-day surprise.
- Pull your two most recent years of tax returns (the SOP requirement; a third year rarely hurts), personal and business, plus your most recent bank statements.
- Build your Form 770 inputs: monthly household income and expenses, every asset (accounts, vehicles, real estate, retirement), and every debt. This sworn financial picture is the backbone of any payment plan or compromise, and assembling it honestly is most of the work.
- Get the liquidation record from your lender: what collateral was sold, for how much, and what was applied to the balance. Your negotiating position starts from the true remaining deficiency, not the number you remember.
- Document the hardship, if there is one: medical events, the business closure, anything that explains ability to pay. SBA’s analysis is financial, but a documented file reads differently than an asserted one.
- Decide who is helping you. A business or bankruptcy attorney, a CPA for the tax side, or free counseling through your local SBDC or SCORE chapter. If bankruptcy is realistically on the table, read how bankruptcy interacts with SBA loans before you sign anything, because an active filing changes what SBA can consider.
- Respond in writing, before the deadline, with proof of delivery. Whatever door you choose, choose it on paper.
If you are a guarantor, this letter is about you
The demand letter goes to obligors, plural: the business and every personal guarantor. If you signed the guarantee, the 60 days and everything behind it, offsets, garnishment, credit reporting, apply to your personal finances, not the closed company’s. What happens to your personal guarantee in a default walks through exactly what is reachable.
This is not legal advice
The 60-day window is short, the paperwork is sworn, and the consequences of each door differ with facts no general page can see. Talk to a business or bankruptcy attorney before you submit an offer or sign an arrangement, and use the free help (SBDC, SCORE) even if you also hire someone. This page explains the letter; it does not substitute for advice on your specific debt.