In a move overlooked by many, the federal government has taken new steps to pursue collection and repayments from businesses and individuals that participated in a massive Small Business Administration pandemic program.
Nearly 500,000 delinquent borrowers that participated in SBA’s COVID-19 Economic Injury Disaster Loan — known as EIDL — have been referred to the Treasury Department for collection. This major change means businesses can be contacted by third-party private collection agencies pursuing collection of government debt. Delinquent borrowers now must deal with the Treasury Offset Program, which means the government can automatically seize things like tax refunds and Social Security benefits.
Moving these loans from the SBA into the Treasury collection program means delinquent borrowers have vastly limited financial options to repay their debts. They could face financial entanglements for years. Complicating the matter: Frost Law continues seeing instances where SBA did not follow the proper protocols for notifying loan borrowers before their debts were transferred to Treasury.
“We’re seeing cases where businesses were caught flat-footed by SBA shifting the loans over to the Treasury collection program,” said Glen Frost, Founding Partner of Frost Law. “In a number of situations, it appears the rights of the borrowers have been neglected or ignored. Once in the Treasury collection program, people have much less flexibility to resolve their debt. They also face the risk of being pursued by third-party collectors and having tax refunds and federal benefits seized. It’s an alarming situation.”
Frost Law, a national firm headquartered in metropolitan Washington, D.C., has been working with hundreds of SBA borrowers that participated in the EIDL program. For borrowers who have received an SBA notification, contact from a third-party collection agency or suspect their EIDL loan has been to Treasury for collection, Frost Law may be able to help. Contact Frost Law to see what your options may be or if a limited exception may apply to you.
Federal loans have received extensive attention in recent months, including delinquent student loan repayments under the Department of Education. But much less attention has been focused on another important group – the small businesses that received the SBA pandemic loans.
Some background helps explain how the situation grew so large. The SBA’s Economic Injury Disaster Loan program is not new — it has existed since the 1950s and has long been used to help businesses recover from localized disasters such as hurricanes, floods, and tornadoes. What set the COVID-19 version apart was its scale. For the first time, the program responded to a nationwide emergency, extending loans to millions of businesses in every state at once — which is part of why the collection wave now unfolding is so large.
As the pandemic began in 2020, nearly 4 million businesses got a helping hand from SBA in the form of the EIDL loans, a safety net designed to help businesses survive the financial shock of the pandemic. Business owners signed 30-year loans at 3.75% interest. For those struggling to pay the loans back, the government had a Hardship Accommodation Plan in place. That hardship program initially reduced payments to just 10%, and was later changed to a one-time, 50% payment reduction for six months. As discussed below, that relief technically remains available to a narrow group of borrowers who have not already used it — but for most borrowers now in default, it is out of reach.
This spring, the SBA took action against some half-million EIDL borrowers in what was called the largest debt-referral package in the agency’s history. More than 450,000 of these delinquent pandemic-era loans went to the Treasury Department to be put into the federal government’s collection machine. These involve tens of billions of dollars in loans.
This collection transfer changes everything. Once a loan moves to Treasury and the agency’s Cross-Servicing program, the SBA loses authority over the account. The SBA can no longer modify terms, accept hardship applications, or adjust payment schedules. The tools borrowers have relied on for years are simply gone. With very limited exceptions, referral back to the SBA for loan servicing and administration is not possible once a delinquent account has moved to Treasury Cross-Servicing.
The SBA's EIDL portal still references a payment assistance program that cuts monthly payments by 50% for up to six months. While this may come as a relief to some borrowers, for most it is not. There is a condition buried in the fine print: The loan must be under 90 days past due and cannot carry a "Charged-Off" or "Uncollectible" status.
The borrowers who need help most — the ones already in default — are the ones who no longer qualify for the assistance program. And for the nearly half-million delinquent loans now referred to Treasury, that door is closed
Federal collection through the Treasury's Cross-Servicing program is not like dealing with a private creditor. For people in this group, this creates new financial risks. The government has tools that no commercial debt collector possesses:
Treasury contracts with a specific set of authorized private collection agencies to pursue EIDL repayments. If you have heard from any of these groups in connection with your SBA loans, you should consider consulting a trusted legal source for advice:
The transfer to Treasury does not mean the SBA debt is beyond challenge. Before the SBA can refer a loan to Treasury, it must certify that the debt is valid, legally enforceable, and that the borrower receives all of the required due process notices. Typically, this means SBA must send a 60-day demand letter warning of the impending referral.
Frost Law is seeing instances where this proper legal notification was not given by the SBA. And if proper notice was never provided, that is grounds for a formal Cross-Servicing Dispute. This process is far more effective to help people before government enforcement and collection action begins. But borrowers beware: The window to act does not stay open indefinitely.
Your legal risk depends heavily on which tier your SBA EIDL loan falls into. The larger the loan, the greater the risk.
Borrowers in the $25,000–$200,000 range are in a legally distinct position. Where they did not sign a personal guarantee, their home and personal savings are generally not directly at risk. That is a general rule, not a guarantee, however. A number of factors can still pull personal assets into reach, so no one in this range should assume they are protected without an individualized review:
For anyone in this range who wants to sell their business, wind operations down cleanly, or prevent Treasury from seizing business property, that lien must be addressed, and that requires legal navigation.
Many borrowers who received SBA notices earlier this year have not yet responded. In the meantime, the collection surcharge on their bills is already growing. Tax refund offsets through this Treasury process happen on their own schedule, beyond the control of the person who borrowed. Wage garnishment, once started, continues until the debt is resolved or successfully challenged.
But people with payment issues involving EIDL loans have options. Early action is critical. A dispute filed before enforcement escalates is far more likely to succeed. An installment agreement negotiated proactively carries better terms than one reached under pressure.
The SBA loan referrals to Treasury represents one of the largest federal debt collection actions in recent memory. The business owners who navigate it best will be the ones who acted before their cases moved to Treasury – and reached the hands of private collection agencies.
If your EIDL loan has been referred to Treasury, or you have received a notice suggesting it may be, contact the attorneys at Frost Law. Call (410) 497-5947 or fill out our contact form.
In a move overlooked by many, the federal government has taken new steps to pursue collection and repayments from businesses and individuals that participated in a massive Small Business Administration pandemic program.
Nearly 500,000 delinquent borrowers that participated in SBA’s COVID-19 Economic Injury Disaster Loan — known as EIDL — have been referred to the Treasury Department for collection. This major change means businesses can be contacted by third-party private collection agencies pursuing collection of government debt. Delinquent borrowers now must deal with the Treasury Offset Program, which means the government can automatically seize things like tax refunds and Social Security benefits.
Moving these loans from the SBA into the Treasury collection program means delinquent borrowers have vastly limited financial options to repay their debts. They could face financial entanglements for years. Complicating the matter: Frost Law continues seeing instances where SBA did not follow the proper protocols for notifying loan borrowers before their debts were transferred to Treasury.
“We’re seeing cases where businesses were caught flat-footed by SBA shifting the loans over to the Treasury collection program,” said Glen Frost, Founding Partner of Frost Law. “In a number of situations, it appears the rights of the borrowers have been neglected or ignored. Once in the Treasury collection program, people have much less flexibility to resolve their debt. They also face the risk of being pursued by third-party collectors and having tax refunds and federal benefits seized. It’s an alarming situation.”
Frost Law, a national firm headquartered in metropolitan Washington, D.C., has been working with hundreds of SBA borrowers that participated in the EIDL program. For borrowers who have received an SBA notification, contact from a third-party collection agency or suspect their EIDL loan has been to Treasury for collection, Frost Law may be able to help. Contact Frost Law to see what your options may be or if a limited exception may apply to you.
Federal loans have received extensive attention in recent months, including delinquent student loan repayments under the Department of Education. But much less attention has been focused on another important group – the small businesses that received the SBA pandemic loans.
Some background helps explain how the situation grew so large. The SBA’s Economic Injury Disaster Loan program is not new — it has existed since the 1950s and has long been used to help businesses recover from localized disasters such as hurricanes, floods, and tornadoes. What set the COVID-19 version apart was its scale. For the first time, the program responded to a nationwide emergency, extending loans to millions of businesses in every state at once — which is part of why the collection wave now unfolding is so large.
As the pandemic began in 2020, nearly 4 million businesses got a helping hand from SBA in the form of the EIDL loans, a safety net designed to help businesses survive the financial shock of the pandemic. Business owners signed 30-year loans at 3.75% interest. For those struggling to pay the loans back, the government had a Hardship Accommodation Plan in place. That hardship program initially reduced payments to just 10%, and was later changed to a one-time, 50% payment reduction for six months. As discussed below, that relief technically remains available to a narrow group of borrowers who have not already used it — but for most borrowers now in default, it is out of reach.
This spring, the SBA took action against some half-million EIDL borrowers in what was called the largest debt-referral package in the agency’s history. More than 450,000 of these delinquent pandemic-era loans went to the Treasury Department to be put into the federal government’s collection machine. These involve tens of billions of dollars in loans.
This collection transfer changes everything. Once a loan moves to Treasury and the agency’s Cross-Servicing program, the SBA loses authority over the account. The SBA can no longer modify terms, accept hardship applications, or adjust payment schedules. The tools borrowers have relied on for years are simply gone. With very limited exceptions, referral back to the SBA for loan servicing and administration is not possible once a delinquent account has moved to Treasury Cross-Servicing.
The SBA's EIDL portal still references a payment assistance program that cuts monthly payments by 50% for up to six months. While this may come as a relief to some borrowers, for most it is not. There is a condition buried in the fine print: The loan must be under 90 days past due and cannot carry a "Charged-Off" or "Uncollectible" status.
The borrowers who need help most — the ones already in default — are the ones who no longer qualify for the assistance program. And for the nearly half-million delinquent loans now referred to Treasury, that door is closed
Federal collection through the Treasury's Cross-Servicing program is not like dealing with a private creditor. For people in this group, this creates new financial risks. The government has tools that no commercial debt collector possesses:
Treasury contracts with a specific set of authorized private collection agencies to pursue EIDL repayments. If you have heard from any of these groups in connection with your SBA loans, you should consider consulting a trusted legal source for advice:
The transfer to Treasury does not mean the SBA debt is beyond challenge. Before the SBA can refer a loan to Treasury, it must certify that the debt is valid, legally enforceable, and that the borrower receives all of the required due process notices. Typically, this means SBA must send a 60-day demand letter warning of the impending referral.
Frost Law is seeing instances where this proper legal notification was not given by the SBA. And if proper notice was never provided, that is grounds for a formal Cross-Servicing Dispute. This process is far more effective to help people before government enforcement and collection action begins. But borrowers beware: The window to act does not stay open indefinitely.
Your legal risk depends heavily on which tier your SBA EIDL loan falls into. The larger the loan, the greater the risk.
Borrowers in the $25,000–$200,000 range are in a legally distinct position. Where they did not sign a personal guarantee, their home and personal savings are generally not directly at risk. That is a general rule, not a guarantee, however. A number of factors can still pull personal assets into reach, so no one in this range should assume they are protected without an individualized review:
For anyone in this range who wants to sell their business, wind operations down cleanly, or prevent Treasury from seizing business property, that lien must be addressed, and that requires legal navigation.
Many borrowers who received SBA notices earlier this year have not yet responded. In the meantime, the collection surcharge on their bills is already growing. Tax refund offsets through this Treasury process happen on their own schedule, beyond the control of the person who borrowed. Wage garnishment, once started, continues until the debt is resolved or successfully challenged.
But people with payment issues involving EIDL loans have options. Early action is critical. A dispute filed before enforcement escalates is far more likely to succeed. An installment agreement negotiated proactively carries better terms than one reached under pressure.
The SBA loan referrals to Treasury represents one of the largest federal debt collection actions in recent memory. The business owners who navigate it best will be the ones who acted before their cases moved to Treasury – and reached the hands of private collection agencies.
If your EIDL loan has been referred to Treasury, or you have received a notice suggesting it may be, contact the attorneys at Frost Law. Call (410) 497-5947 or fill out our contact form.
