How Small‐Dollar Fraud Provides the SBA Powerful Leverage though the SBA OIG’s Administrative False Claims Act (AFCA) That Can Cost SBA Lenders, Borrowers, and Guarantors Up To $1 Million

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Why the SBA Loan and Debt Playbook Changed

On December 23, 2024, Congress super-charged an obscure statute—the Administrative False Claims Act (AFCA)—when it passed the FY 2025 National Defense Authorization Act. The amendments raise the cap on administrative cases from $150,000 to $1 million and broaden what counts as a “false claim,” empowering every federal inspector general—including the SBA Office of Inspector General (OIG)—to pursue loan-related fraud or malfeasance even when the Department of Justice (DOJ) says “no thanks.”

More importantly, it should be noted that SBA Administrator Kelly Loeffler published her "Day One Memo" confirming SBA plans to aggressively step up collection efforts and audit investigations for COVID loans disbursed due to the pandemic –which can lead to a number of AFCA actions in the near future.

As part of the Trump Administration’s policy to pursue SBA COVID Loan fraud specifically involving PPP and EIDL loans, legislation was introduced in Congress by Republicans to ensure that collections on loans made to small businesses borrowers and guarantors related to the COVID-19 pandemic will no longer be suspended.

Click the following link to learn more about the "Complete COVID Collections Act" that was introduced as a Senate bill and may become federal law in the future: COVID Collections Act

AFCA vs. the Civil False Claims Act: Same Bite, Faster Bark

Feature: Where the case is heard
AFCA (as amended): Administrative hearing before a United States Administrative Law Judge (ALJ) at the SBA Office of Hearings & Appeals Court (OHA) or Board of Contract Appeals member
Civil FCA: Federal District Court

Feature: DOJ involvement
AFCA (as amended): DOJ must approve the filing but does not have to prosecute in Federal District Court
Civil FCA: DOJ (or a qui-tam relator) files the suit

Feature: Dollar threshold
AFCA (as amended): ≤ $1 million per case (indexed for inflation)
Civil FCA: No cap

Feature: Penalties
AFCA (as amended): Up to $5,000 per false claim/statement + double damages + investigation costs
Civil FCA: Up to ~$27,000 per claim + treble damages

Feature: Statute of limitations
AFCA (as amended): 6 years from violation or 3 years from discovery (max 10)
Civil FCA: 6–10 years depending on facts

Sources: 31 U.S.C. §§ 3801-3812; FY 2025 NDAA § 5203.

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How an AFCA Case Starts Inside SBA

1. Investigating Official – The SBA OIG assigns special agents to subpoena records and interview witnesses. (Small     Business Administration, eCFR)
2. Reviewing Official – A senior SBA attorney reviews the OIG’s report to decide whether sufficient evidence supports a charge.
3. DOJ  Screening – The package goes to DOJ. If DOJ declines to sue under the Civil FCA in Federal District Court, it can green-light SBA to proceed administratively before an ALJ at the SBA Office of Hearings & Appeals Court (OHA) or Board of Contract Appeals member.
4. Administrative Complaint – SBA files before an ALJ; Respondent SBA participating lenders, SBA loan borrowers, obligors or guarantors receive 30 days to file an answer or other responsive pleading.

Hearing & Decision – After discovery and an evidentiary hearing,the presiding ALJ issues findings in a Decision and Order – which can involve the imposition of penalties or dismisses the case. Appeals go to the SBA Administrator and then to the Federal D.C. Circuit pursuant to rights and remedies under the Administrative Procedures Act (APA).

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Red-Flag Scenarios for SBA Lenders, Borrowers, and Guarantors

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Player: 7(a) / CDC Lenders
Potential AFCA Violation: Certifying that collateral was properly perfected or liquidated in a commercially reasonable manner when it was not
Real-World Example: Filing an SBA Form 159 indicating all fees were disclosed  when “packaging” fees were hidden

Player: Borrowers
Potential AFCA Violation: Overstating payroll in a PPP forgiveness application
Real-World Example: Claiming EIDL funds were used for working capital while  diverting cash to personal real estate or other personal expenses

Player: Guarantors
Potential AFCA Violation: Concealing assets to avoid repayment (reverse false claim)
Real-World Example: Transferring property to a spouse after default but before Treasury offset; Lying about or omitting relevant financial information in financial statements (Form 770), Offer in Compromise(Form 1150) or other pertinent documents submitted under penalty of perjury

Player: Servicers / Purchasers
Potential AFCA Violation: Misreporting liquidation proceeds to maximize the SBA guarantee purchase
Real-World Example: Failing to remit auction proceeds and certifying “no recoveries available"

Because the amended AFCA now covers reverse false claims,hiding assets or under-reporting recoveries can trigger liability even when no new funds are sought. Source: (National Law Review)

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Penalties: What’s at Stake

1. Civil Penalty – Up to $5,000 per false statement or claim (adjusted for inflation).
2. Damage Multiplier – Up to 2× the amount SBA already paid or credited.
3. Cost Reimbursement – SBA recoups the OIG’s investigation and litigation costs first.

For a single 7(a) guarantee purchase of $400,000 supported by four false certifications, exposure can exceed $900,000 before interest.

To-Do Action Plans

1. Tighten  Documentation – Keep source data (payroll reports, bank statements, appraisals) for six years.
2. Refresh Training – Update staff and borrower on boarding materials to cover AFCA risks.
3. Audit     Certifications – Double-check Form 172, Form 159, servicing reports, and loan forgiveness packages.
4. Self-Disclosure – If errors surface, consider a proactive disclosure to SBA OIG before an investigation begins.
5. Maintain  Guarantor Transparency – Track asset transfers post-default; document valuations.

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Takeaway

The AFCA’s $1 million ceiling and broader definitions mean SBA OIG no longer needs to wait for DOJ to chase many PPP, EIDL, Disaster, 7(a)or 504 fraud cases. Small-dollar no longer means small risk. A single inaccurate certification under penalty of perjury can invite an administrative lawsuit before the SBA OHA Court that freezes assets, garnishes Treasury payments, and tarnishes reputations.

If you are an SBA  borrower, or guarantor facing an inquiry—contact the attorneys at SBA-Attorneys.com for a confidential Case Evaluation.

This article is provided for informational purposes only and does not constitute legal advice. Consult a qualified SBA-Attorney for advice regarding your individual situation.

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