If he's fit enough, I'd sign him.
Assuming the link is genuine and this might well happen, loan is fine as it would likely be a big fee to sign him permanently.
Yes, he's been poor last few years (Everton and Ipswich, not sure how he got on at Atalanta), but even us Blades know just how big that gap is between bottom of PL and top of the Championship.
It's a big step down in terms of ability and levels of performance, something that he should be more than capable of doing.
Plus, let's say we do sign this Nils Zatterstrom on a permanent deal as well (surely we wouldn't be linked with him if he wouldn't be eligible), Godfrey, Bindon and Nils Z as options for CB would solve our issues in that position.
Plus Godfrey can play RB as well, covering 2 positions with just 1 player.