US federal officials have begun holding small businesses and nonprofits accountable for the roughly 1 million delinquent government loans that were handed out during the pandemic — and which carry a face value of as much as $20 billion.
The Small Business Administration this week began referring neglected COVID disaster loans with balances of $100,000 or less to the Treasury Department for collection, according to The Wall Street Journal.
Another 10,000 delinquent COVID loans involving larger sums have already been sent to the Treasury.
Unlike private firms, the federal government doesn’t need permission from a court to start collecting on unpaid debts, The Journal reported.
In some cases, it can even seize government benefits and tax refunds. COVID loans of $200,000 or more carry a personal guarantee, which requires borrowers to use personal assets to satisfy their debts.
Small Business Administration sign on a stone wall at headquarters building entrance.
The COVID loan program — which was open from Jan. 1, 2022, thorough May 16 that same year — provided financing to nearly four million small businesses and nonprofits in need of monetary relief in order to recover from the pandemic’s financial impact on their operations.
However, the funds haven’t made their way back to the SBA, which said that already written off roughly 20% of its $390 billion in COVID disaster loans as a loss, according to The Journal.
Per the outlet, the charged-off figure includes Treasury referrals and other circumstances such as bankruptcy, fraud or the death of the borrower.
The SBA says that the sum is in line with its projections as some of the defaulted loans went to borrowers who never intended to repay their debts.
More than $136 billion of COVID disaster loans, or about one-third of the total, showed signs of potential fraud, the SBA’s Office of Inspector General told The Journal. --->READ MORE HERE
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SBA begins referring to the Treasury Department roughly a million loans extended to small businesses and nonprofits during pandemic
Time is running out for small businesses and nonprofits that took out roughly one million government loans during the pandemic.
The Small Business Administration this week began referring as much as $20 billion in delinquent Covid disaster loans with balances of $100,000 or less to the Treasury Department for collection. Another 10,000 delinquent Covid loans involving larger sums have already been sent to the Treasury.
The referrals highlight the continued challenges for the Covid loan program, which provided financing to nearly four million small businesses and nonprofits. The SBA says it has charged off roughly 20% of its $390 billion Covid disaster loan portfolio, an accounting figure that includes Treasury referrals and other circumstances such as bankruptcy, fraud or the death of the borrower.
Borrowers in default whose loans haven’t been sent to the Treasury Department can avoid the collection process by immediately requesting hardship assistance, according to the SBA. The SBA says the charge-off rate for the portfolio is in line with projections.
Some of the troubled loans went to borrowers who never intended to repay the debts. More than $136 billion of Covid disaster loans, or about one-third of the total, showed signs of potential fraud, according to the SBA’s Office of Inspector General. The SBA says it believes the amount of fraud is lower.
Other borrowers were in weak financial condition at the time they sought financing, are still struggling to recover from the pandemic, or have closed their doors. Some borrowers and advisers say poor communication, repeated changes in government policies and limited options for relief have created additional challenges.
“I’m talking to dozens of people every week who are dealing with the SBA’s struggle to service these things,” said Jason Milleisen, who advises distressed SBA borrowers and previously handled loan workouts for an SBA lender. “People are superconfused.” Borrowers often receive conflicting information from different SBA employees, he said.
Mitra Ryndak’s restaurant, Cafe Aroma in Winnetka, Ill., was evicted by her landlord a few months after she took out a $136,000 Covid loan in 2020. Ryndak said she used the money to pay back taxes and wages, repay loans from family and friends, and cover other expenses. The landlord began looking for another tenant after she fell behind on rent.
Ryndak said the agency allowed her to make reduced loan payments for two hardship periods, but rejected her request to settle the debt for less than the amount owed. She said she paid the SBA $2,500 from the sale of her restaurant equipment.
In February, she received an email notifying her that the loan was more than 100 days past due and could be sent to the Treasury unless she pays nearly $4,000 to bring the loan current and requests another hardship accommodation. “I walked out with nothing in my hands,” said Ryndak.
The SBA declined to comment on individual borrowers. The agency said it recognizes the challenges many small-business owners continue to face and has worked hard to provide them with payment flexibility and innovative forms of assistance.
The SBA initially allowed borrowers to defer loan payments for up to 12 months, then extended the deferral period twice, to a maximum of 30 months, though interest on the loans continued to accumulate during that time. It has also rolled out a series of hardship accommodations for borrowers experiencing short-term financial challenges.
Borrowers who qualify can make monthly payments of at least 10% of the amount due, or a minimum of $25, for up to two six-month periods. Borrowers seeking additional relief can temporarily make payments equal to 50% and then 75% of the amount due before resuming normal payments after another year. --->READ MORE HEREFollow links below to relevant/related stories and resources:
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