Small businesses and nonprofits that are unable to repay the Small Business Administration (SBA) for COVID disaster loans are now facing collection processes.
Earlier this month, the SBA 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 Wall Street Journal looks at the continued challenges for the COVID loan program, which provided financing to nearly four million small businesses and nonprofits. Approximately 20% of the $390 billion loan portfolio has been charged off, with concerns about potential fraud and borrower struggles exacerbated by communication issues and changing policies.
Borrowers can request hardship assistance from the SBA to avoid collections, but the long-term repayment obligations remain daunting. The government's stringent collection process and limited flexibility compound the financial burdens faced by borrowers, highlighting the ongoing difficulties in navigating post-pandemic recovery efforts.
Although loans can sometimes be called back once they are assigned to a collection firm, simply catching up on the payments isn’t sufficient, the SBA said. At this point, a loan can only be recalled under special circumstances, such as a death or bankruptcy.
