In a recent development, the Small Business Administration (SBA) has made a significant policy decision regarding Economic Injury Disaster Loans (EIDL) borrowers. This decision has major implications for over 4 million COVID EIDL borrowers, impacting both their financial obligations and future SBA funding. In this blog post, we'll delve into the details of this decision, its potential consequences, and what it means for small business owners across the United States.
Watch the video of the news below or read the following video summary.
The SBA's EIDL Policy Shift
The SBA had initially stated that they would not pursue collections for EIDL loans of $100,000 or less, signaling a leniency towards borrowers who couldn't repay their loans. However, this decision has raised important questions about the government's role in handling these loans, as it may potentially violate the Debt Collection Improvement Act of 1996, which prohibits ending collections on fraudulent or misrepresented claims.
On September 29th, the SBA Office of Inspector General (OIG) issued a report with 5 recommendations that the SBA take to more appropriately handle servicing EIDL loans.
The EIDL Loan Landscape
To provide context, the SBA distributed nearly $470 billion through the COVID EIDL program, benefiting over 4 million entrepreneurs and small businesses across the country. A significant portion, 75%, received loans of $100,000 or less, totaling $71 billion. The SBA initially decided not to pursue collections for this group, citing the high cost of collection exceeding the potential recovery amount.
Initially COVID EIDL loan payments could be deferred up to 2 years. After the 2 years, the SBA offered Hardship Accommodation payment options. These efforts by the SBA were aimed at helping borrowers repay and recognizing small business owners may still be facing hardships following the pandemic.
SBA Office of Inspector General Key Recommendations
In the OIG report from September 29, the SBA has agreed with a couple recommendations put forth by the Office of Inspector General. These recommendations include performing a cost-benefit analysis to evaluate collection costs versus recovery amounts, re-evaluating the decision to end active collections, and ensuring active collections for borrowers who received multiple EIDL loans exceeding $100,000. Furthermore, there is a call to address potentially fraudulent loans and evaluate the feasibility of selling portions of the EIDL loan portfolio.
In short, the SBA will pursue collections for certain borrowers that fall under $100k and may take further action depending on the cost benefit analysis they conduct. In all cases, there are consequences for borrowers if they're unable to repay.
SBA EIDL Update Conclusion
The SBA's new policy decision on COVID EIDL loan borrowers is a complex issue that requires careful consideration. If you have received an EIDL loan, particularly one exceeding $100,000, it's essential to stay informed about these developments and their potential impact on your financial obligations.
While the SBA is working to strike a balance between supporting struggling businesses and recovering funds, it's crucial for borrowers to explore available options and stay prepared for any changes in the future. As this situation continues to evolve, small business owners must remain adaptable and proactive in managing their financial responsibilities.