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| Emil Lendof/The Wall Street Journal, iStock |
The government has referred 860,000 delinquent Covid loans for collection—tacking on billions of dollars in fees for small-business borrowers
Ampac USA borrowed $500,000 to stay afloat during the pandemic. The skincare-products company defaulted on its loan last year. It has made $425,000 in loan payments and was told it still owes roughly $262,000.
The reason: After Ampac defaulted, the loan was sent to collections where the company was assessed a 30% fee. That percentage is on the high end of what private lenders typically charge customers who fail to make loan payments; Ampac’s loan was issued by a federal agency.
The Small Business Administration provided $390 billion in Covid disaster loans to nearly four million small businesses and nonprofits during the pandemic. The loans provided a lifeline for many small businesses. For some borrowers who have defaulted on their loan payments, the bill is now coming due—and it is larger than they expected.
The SBA has referred 860,000 delinquent Covid disaster loans totaling more than $59 billion to the Treasury Department for collection. Some borrowers say their businesses are still struggling or have closed their doors, while others say they inadvertently missed loan payments, or never intended to repay their debts.
David Bade, Ampac’s chief operating officer, said he was stunned to learn that the Santa Rosa, Calif.-based company owed a 30% collection fee, a cost that he said isn’t spelled out in the documents borrowers signed when they took out the loan.
“I can’t charge that as a business,” Bade said. “You would go to jail for usury.”
System under strain
Ampac’s experience highlights the continuing challenges of the Covid loan program and the strains it has put on borrowers, the SBA and the Treasury’s collection unit.
Small businesses typically use disaster loans to repair real estate or replace machinery and physical goods destroyed by a hurricane, flood or other natural disaster and to cushion the impact of a brief gap in sales or other short-term economic injuries.
In a typical year, the SBA charges off about 650 disaster loans made to small businesses, said Benjamin Collier, an associate professor at Temple University who has studied the performance of disaster loans issued between 2005 and 2017. A charge-off is an accounting figure that includes Treasury referrals and other circumstances such as bankruptcy, fraud or the death of the borrower.
The SBA said that it is currently servicing about 2.2 million Covid disaster loans outstanding and that it has charged off roughly 20% of its $390 billion Covid disaster-loan portfolio.
A Treasury spokesperson said Congress mandated the federal debt-collection program but didn’t provide any funding for it, and instead authorized the Treasury to charge a fee for administering the program. --->READ MORE HERE (or HERE)
A former Farmington Hills woman, who used to be an agent for the Bureau of Alcohol, Tobacco, and Firearms, was bound over to stand trial in connection to obtaining fraudulent loans during the COVID-19 pandemic, officials said.
Tiesha Johnson, 56, waived her preliminary examination and will stand trial in Oakland County.
The issue was referred to Nessel by the U.S. Department of Justice Office of Inspector General in July 2022. Johnson allegedly received two PPP loans and one EID loan totaling $34,675 while she was an ATF investigator and a federal employee.
The purpose of these loans was to help businesses cover payroll expenses during the height of the pandemic.
Johnson was arrested in Dallas on warrants from Attorney General Dana Nessel's office and brought back to Michigan. In December 2023, Johnson was arraigned on three counts of false pretenses, $1,000 to $20,000. --->READ MORE HEREFollow links below to relevant/related stories and resources:
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