The 23-year-old, who joined Liverpool for £6m in August 2001, has struggled with injuries since arriving at Anfield and has lost his place to Jerzy Dudek.
Sky Blues chairman Mike McGinnity said: "We'd get a quality keeper and if we can get him playing regularly he's more likely to get a call-up for England."
Coventry will get an extra £250,000 if Kirkland earns a full England cap.
Kirkland has started just 15 league games in the four years since his move from Highfield Road.
He has long been considered one of the most talented goalkeepers in England, but a broken finger, cracked wrist and a serious knee injury have hindered his progress.
Kirkland was called into the England squad for the recent friendly against the Ukraine at St James' Park, but injury has meant him missing out on selection for the games against Austria and Poland.
I maen for god's sake, he recovers from injury and we offer him out on loan. it's madness. dudek's having a nightmare at the moment.
