McFadden, who is a free agent, has been training with Sunderland for the last couple of weeks as he looks to fix himself up with a club.
The former Everton and Birmingham man has impressed O'Neill during his stint on Wearside and the Black Cats gaffer is ready to offer the Scot a short-term deal.
"James has trained with us and I think he's done well. I'll have a proper word with him this week," said O'Neill.
O'Neill also revealed he could loan out several players, including Connor Wickham and Ji Dong-Won.
"We don't have a massive squad but I could stagger loans so we don't have a big group out at the same time."
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