The coastguard received a distress alert at about 3.45am on Saturday, and the boat's emergency positioning beacon was activated near the island of Mingulay.
One person has been rescued and taken to hospital by helicopter.
A search operation is continuing to find the three sailors who remain unaccounted for.
It is believed that weather conditions were relatively calm when the vessel went down.
A Maritime and Coastguard Agency spokeswoman added: "The coastguard search and rescue helicopter based at Stornoway has been searching the area along with the Barra RNLI lifeboat.
"The lifeboat remains in the area and the coastguard search and rescue helicopter from Prestwick has taken over so the search can continue."
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