During the pandemic, Economic Injury Disaster Loans (EIDL) and Paycheck Protection Program (PPP) loans played a pivotal role in supporting businesses. However, managing these loans can become complex, especially when financial difficulties arise.
The Paycheck Protection Program (PPP) was a federal relief loan program that helped businesses during the COVID-19 pandemic. The loans provided funds for payroll and overhead costs, like rent, mortgage interest, and utilities. Unlike other Small Business Administration (SBA) programs, PPP loans were designed with forgiveness in mind. Borrowers who used the funds for approved costs could have some or all of the loan forgiven, meaning many borrowers never had to repay it at all.
The Economic Injury Disaster Loan, or EIDL loans, on the other hand, worked differently. These were like traditional loans with a fixed repayment term (typically 30 years) and no forgiveness option. Because EIDL loans stick around longer and involve personal liability in many cases, disputes over default, collateral, or repayment terms tend to surface more often with EIDL loans than with PPP loans.
EIDL loans, administered by the Small Business Administration (SBA), serve as federal aid aimed at helping businesses recover from economic setbacks following declared disasters. Unlike traditional loans, EIDL assistance focuses on alleviating economic injury rather than physical damage. Businesses affected by events like the COVID-19 pandemic could apply for these loans to address financial strains.
Should a business fail to meet its EIDL loan obligations, default consequences can be severe:
In September 2025, the SBA began reporting EIDL and PPP loans to the Department of the Treasury and the Department of Justice. If you have received notices from any of these agencies, please contact Frost Law to discuss your options.
When you fall behind on an SBA loan, like an EIDL loan, there's a general timeline the SBA follows before the debt enters more serious collection stages. Knowing what to expect at each step can help borrowers understand their options and act before the situation gets harder to resolve.
Business owners struggling to repay an EIDL loan in full may have another option: an SBA Offer in Compromise. This process allows a borrower to settle their debt for less than the total amount owed, provided they can show that full repayment isn't realistic given their financial situation. To be considered, borrowers typically need to submit SBA Form 1150 (paired with Form 770), along with detailed financial documentation, including income, assets, liabilities, and expenses, and an explanation of why they can't repay the loan in full. The process requires careful preparation and a clear presentation of the borrower's circumstances. Working with an attorney can help borrowers put together a stronger, more complete offer.
Despite the challenges posed by default, businesses have avenues to address their situation. Offering partial payments as a gesture of goodwill can sometimes mitigate further actions. However, preparing for potential legal proceedings is crucial. Seeking legal counsel specialized in SBA matters can provide invaluable guidance. Businesses have options when it comes to resolving loan default including, loan deferment and repayment, filing for a hardship .
From November 2022 through March 19, 2026, the SBA had a Hardship Accommodation Plan, often abbreviated as HAP or simply called the "Hardship Plan." Under this plan, the SBA allowed EIDL borrowers to repay 10% of each payment for 6 months, with payments ramping up after that. The discontinued Hardship Plan is often confused with the SBA's current option, which reduces payments by 50% for 6 months.
When all other options have been exhausted, our bankruptcy attorneys can explore the possibility of discharging your SBA loan through bankruptcy proceedings. The outcome and ramifications, however, hinge on whether the bankruptcy is filed personally or for the business.
Businesses should also be aware of the statute of limitations regarding default lawsuits. While there's a time limit for filing such suits, the SBA retains the right to pursue collections through other means such as federal payment offsets, indefinitely.
EIDL and PPP loan obligations don't exist in a vacuum. Court decisions, agency guidance, and changes in federal law can all affect how these loans are enforced. This includes the options available if a loan goes into default. We'll look at some of the more recent developments below.
June 2026: Nearly 500,000 delinquent SBA COVID-19 Economic Injury Disaster Loans (EIDL) are transferred to the U.S. Department of the Treasury, effectively closing the door on standard SBA hardship relief options. This shift exposes defaulting borrowers to aggressive collection tools like wage garnishment, asset liens, and the seizure of tax refunds or Social Security benefits. Read more about the EIDL loans being sent to the Treasury Department.
August 2022: Legislation extends the statute of limitations for PPP and EIDL fraud to ten years, and the government intensifies efforts to investigate and prosecute COVID-19 fraud. The government's primary targets include individuals who falsified business records, orchestrated sham transactions using stolen identities, or misused relief funds for personal expenses. Read more about these efforts.
September 2021: The Small Business Administration (SBA) expanded the EIDL program, increasing the loan cap, broadening the acceptable use of funds, extending the repayment deferral period, and opening eligibility to more industries. Read more about these changes.
Early 2021: The first round of PPP loans in 2020 was so successful that Congress approved a second round of loans in 2021. The IRS and SBA clarified many of the open questions about the loans in early 2021. Read more about these clarifications.
Given the complexity of managing delinquent or defaulting EIDL loans, seeking professional legal assistance is advisable. Law firms specializing in SBA matters can provide nationwide representation and expertise in negotiating settlements and resolving debt disputes.
At Frost Law, we specialize in assisting businesses facing EIDL loan challenges. Our team provides comprehensive support to navigate the complexities of debt resolution. With a focus on safeguarding our clients' financial interests and preventing bankruptcy or foreclosure, our attorneys are authorized to represent federal debtors nationwide.
To address your Treasury or SBA debt concerns effectively, contact Frost Law today for a personalized case evaluation call us at (410) 497-5947 or schedule a confidential consultation.
If you received an SBA COVID-19 Economic Injury Disaster Loan (EIDL) and are now struggling to repay it, you are far from alone. The SBA issued roughly 3.9 million EIDL loans, and millions of borrowers are now behind or in default. The deferment periods have ended, the SBA's temporary relief programs have wound down, and the agency has begun referring delinquent accounts to the U.S. Treasury and Department of Justice for enhanced debt collection.
For most of 2020 through 2025, the SBA handled COVID EIDL delinquencies largely in-house. That changed when the SBA’s temporary authority to keep servicing defaulted COVID EIDLs expired on March 31, 2026. Shortly after, the SBA referred roughly 500,000 pandemic-era loans worth roughly $22 billion to Treasury, reportedly its largest referral package on record. If you’ve recently started getting letters from Treasury or a Treasury collection contractor, this is very likely why.
The good news is that the situation is often more manageable than it feels, though your options generally narrow the longer you wait. This page answers the questions borrowers ask us most. It is general educational information, not legal advice for your specific situation — see the disclaimer at the bottom.
The Economic Injury Disaster Loan is a long-term, low-interest loan administered by the U.S. Small Business Administration to help businesses recover from a disaster — in this case, the COVID-19 pandemic. Most COVID-19 EIDL loans carry a 30-year term at a fixed 3.75% interest rate (2.75% for nonprofits). Payments were initially deferred for about 30 months, but interest accrued during that entire deferment period, so many borrowers owe more than they originally borrowed.
Default happens when you fall far enough behind on payments that the SBA formally treats the loan as unlikely to be repaid on its terms. It typically follows a sequence: missed payments trigger delinquency notices, then formal demand letters, and, if the account stays unresolved, referral to the U.S. Treasury for enhanced collection. Accounts are generally eligible for referral to the Treasury Offset Program around 120 days past due, and to Cross-Servicing by around 180 days past due. Each stage carries more serious consequences and fewer options than the one before it.
No, EIDL loans are not forgivable. They must be repaid. This is one of the most common and costly misunderstandings, possibly because PPP loans (also from the SBA) are forgivable. Some relief mechanisms exist for borrowers who genuinely cannot pay (discussed below), but there is no blanket forgiveness program for EIDL debt. Be cautious of any service promising "EIDL forgiveness"; it is a common feature of scams targeting distressed borrowers.
Loans issued in 2020–2022 had roughly 30-month deferments, which means the bills came due beginning in 2022–2024. If you set the loan aside during the deferment and haven't revisited it, it may already be delinquent or heading toward Treasury referral without your realizing it. Checking your current status is the first thing to do.
This is the single most important question to answer before you pay anything, and it usually comes down to one number: $200,000.
Your signed loan documents are the final word. Because the SBA's rollout was fast and inconsistent, some borrowers signed guarantees they arguably weren't required to sign, which raises legal questions worth answering before making payments or settlement decisions.
They are related but not the same, and mixing them up leads to bad decisions:
A mid-sized loan might have a business lien but no personal guarantee. A larger loan could have both. The distinction determines what a collector can actually reach. Federal payment offsets can sometimes reach a borrower even on a no-personal-guarantee loan, since they attach to federal payments rather than to specific collateral.
It depends on whether you personally guaranteed the loan, your loan terms, and state law. Without a personal guarantee, collection is generally limited to business assets pledged as collateral. With a personal guarantee, or where federal offset tools apply, your personal exposure is broader. This is exactly the kind of question to review with an EIDL bankruptcy attorney before assuming the worst.
In general terms: the SBA sends delinquency notices, then formal demand letters. If the debt stays unresolved, federal law allows the SBA to refer it to the Treasury Offset Program once it is significantly past due, and to Treasury's Cross-Servicing program shortly after. Treasury has broader collection authority than the SBA alone. Many borrowers are surprised by how quickly this escalates, especially since the SBA’s own authority to service EIDL loan defaults in-house lapsed in March 2026, accelerating referrals across the board.
Once your debt is referred to Treasury, the federal government can pursue collection without a court order, using tools such as:
When a debt is referred to Treasury for collection, a collection fee, generally in the 28 to 32% range, is typically added to your outstanding balance. This is a major reason to address a delinquent loan before it reaches Treasury: resolving it earlier can avoid a substantial surcharge on top of accrued interest.
For most non-fraudulent borrowers, Treasury offset and administrative collection, not litigation, are the primary tools. That said, litigation is possible, particularly on larger loans, personally guaranteed loans, or cases involving suspected fraud. The SBA’s April 2026 referral batch specifically named the Department of Justice, alongside Treasury, as a recipient of the transferred loans. Whether you face meaningful litigation risk depends on your specific facts.
Yes, an EIDL default can hurt your credit and future loan options. SBA policy is to report delinquent COVID EIDLs to credit bureaus at charge-off, which occurs at 180 days delinquent.
Broadly, borrowers facing EIDL default have several potential paths depending on their circumstances:
None of these is automatic, and the right path is highly fact-specific. Borrowers who negotiate without guidance often accept less favorable terms than they could have.
The SBA's formal, tiered Hardship Accommodation Plan, which let qualifying borrowers pay a reduced percentage of their monthly payment for a set period, ended on March 19, 2025. However, borrowers may still apply for temporary relief, reducing their payments by 50% for six months. This option does not reduce principal or pause interest accrual, and can only be used once every five years.
An Offer in Compromise (OIC) lets a borrower settle for less than the full balance. Per the SBA’s own Offer in Compromise checklist, a workable offer generally requires: the borrower has ceased operations, and all business collateral has been liquidated; full disclosure of financial capacity (SBA Form 770); the offer amount bears a reasonable relationship to what the SBA could realistically recover through enforced collection; no fraud or misrepresentation; and a clearly identified source of funds. It is a formal, sworn submission, not a simple discount request. That is why it’s worth having an attorney assess whether your facts support one before filing.
For some borrowers, particularly those with large, personally guaranteed loans they cannot service, bankruptcy (Chapter 7, Chapter 13, or Subchapter V) is worth analyzing. Filing triggers an automatic stay that stops Treasury collection immediately, and in some circumstances can discharge personally guaranteed EIDL debt. Bankruptcy has significant long-term consequences and isn't right for everyone. It should be weighed against the alternatives with professional guidance.
Not every situation requires one, but the stakes and complexity often justify professional guidance. This is especially true if your loan was over $200,000, you signed a personal guarantee, you're already receiving Treasury notices, or you're weighing settlement versus bankruptcy. The threshold questions (Are you personally liable? Was a guarantee properly required? What can collectors actually reach?) frequently have better answers than borrowers assume, and getting them right early can change your entire strategy.
Our bankruptcy attorneys work with business owners and taxpayers navigating SBA and EIDL debt, assessing personal liability, engaging with the SBA and Treasury, evaluating settlement and hardship options, and coordinating with related tax and bankruptcy considerations. We start by understanding your loan terms and your current position, then map the realistic paths forward for your specific circumstances.
If you're behind on an EIDL loan or receiving collection notices, call Frost Law at (410) 497-5947 or schedule a confidential consultation.
