SBA To Resume Collections Of $100,000 Or Less Past-Due
EIDL Loans For Which It Had Seized Collection Activity

The Small Business Administration (SBA) stopped collection activities for past-due Economic Injury Disaster Loans (EIDL), loans of $100,000 or less—totaling roughly $62 billion—in April 2023, figuring that those efforts would cost more than simply writing the loans off. The internal directive prompted House Republicans to open an investigation and to demand documents from the SBA, as did Senate Republicans.

The program began in 2020 to help cash-starved companies survive the pandemic-induced financial crisis. The SBA stopped accepting loan applications in May 2022. In contrast to other pandemic-era programs, such as the Paycheck Protection Program (PPP), borrowers were required to pay back their EIDL loans.

In June 2023, the SBA’s Office of Inspector General estimated that losses from fraud alone exceeded $200 billion. That figure did not include borrowers who had fallen behind on their bills by 30 days or more, either as a result of economic hardship or negligence.

A Sept. 29, 2023, SBA Office of Inspector General report warned that the “SBA’s decision not to pursue all available collection activities for these loans does not hold those who borrowed upon the public trust accountable and could incentivize other COVID-19 EIDL recipients to stop paying on their loans.” The report also stated, “By prematurely ending active collection activities on delinquent COVID-19 EIDLs with balances of $100,000 or less, SBA risks violating the federal law prohibiting agencies from ending collections on fraudulent, false, or misrepresented claims, given that the full extent of fraudulent loans in the portfolio is unknown.”

At the directive of the Biden Administration, the SBA reversed its previously announced policy of not collecting some past-due EIDL loans.  Before revising its policy, the SBA placed 75.2 million phone calls and sent 7 million emails and 1.6 million letters to the recipients of EIDL loans that fell behind on their bills. It also put delinquent businesses on an official list that prohibited them from obtaining federal loans and other related aid in the future, and it reported the late debts to credit-ratings bureaus—although federal watchdogs later found that the government had failed to do so in a timely, appropriate way.

Starting this year, SBA plans to refer pandemic borrowers in default to the Treasury Department after a 60-day grace period. The agency has the power to issue sanctions, and it can also retain a portion of a taxpayer’s refund or deduct amounts from other federal aid simply to recover unpaid government debt.

To see past publications please visit our Knowledge Center.

The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.