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Writing a hardship letter that gets accepted isn’t about tugging heartstrings—it’s about clarity, credibility and context.
When you submit an SBA Offer in Compromise, your hardship letter is one of the few chances you have to tell your story directly. While the required forms—SBA 770 (personal financial statement), SBA 1150 (offer justification), tax returns, bank statements and asset valuations—cover the numbers, the hardship letter connects the dots. It helps the workout officer understand how you got here, what you’ve done to fix it and why your offer makes sense.
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By the time your file reaches the workout or special assets department, the officer reviewing it probably wasn’t involved when the loan was made—and may be juggling hundreds of cases. A well-structured hardship letter ensures your situation isn’t just another file on their desk.
1. Begin with Context
Start with the background. Explain how the loan originated, what due diligence you did before borrowing, and the steps you took to position the business for success. Show that this wasn’t reckless borrowing—you went in prepared, but circumstances changed.
2. Outline What Went Wrong
Every business has a breaking point. Be specific about yours.
Common issues include:
- Underfunding at launch: The loan amount wasn’t enough to sustain early operations.
- Delays or cost overruns: Working capital had to cover debt service.
- Seller fraud or misrepresentation: The prior owner overstated revenue, hid liabilities or violated a non-compete agreement.
You’re not making excuses—you’re providing context that shows you acted in good faith.
3. Show What You Did to Fix It
Before asking for forgiveness, demonstrate effort. Detail the steps you took to right the ship:
- Requested modifications, deferments, or interest-only periods
- Cut costs or payroll
- Negotiated rent reductions
- Pursued new revenue channels
If you liquidated assets or completed a debt workout to recover value for creditors, include that too. It proves you’ve done everything possible to minimize losses.
4. Describe Your Current Financial Situation
This section should mirror the facts in your SBA 770. Explain your income sources, assets, liabilities and whether any assets were sold to keep the business afloat. Note specifics—what was sold, when and how much was reinvested.
If your income will change soon (for example, a temporary annuity or expiring contract), point it out. Lenders care about long-term sustainability as much as short-term hardship.
5. Present Your Offer and Rationale
Close by explaining your settlement offer—and why it’s in the lender’s best interest to accept it. Emphasize that you’ve exhausted all available resources and that your offer represents the best possible recovery without forcing bankruptcy or litigation.
If friends, family or third parties contributed funds, make that clear. It shows serious intent and good faith.
Final Thoughts
Your hardship letter isn’t just paperwork—it’s your story, backed by evidence. Done right, it builds trust and gives your Offer in Compromise the best chance of approval.
If you’re unsure how to structure your letter or what to include, don’t guess. This process is high-stakes, and getting it right the first time matters. If you are struggling to settle a debt or you have no idea how to begin, set up a free no-obligation consultation.
