SBA COVID PPP & EIDL Business Closure Reviews & Regulatory Compliance Audits
Book a Consultation CallAn SBA Loan Regulatory Compliance Review — also known as a COVID EIDL Business Closure Review or a Risk-Based PPP Lender Review — is an SBA Office of Credit Risk Management (OCRM) audit that happens after the money has been disbursed and deposited into a small business’ bank account. The review generally tests three things:
The authority sits in 13 C.F.R. § 120.1010 and SOP 50 10 7; think of it as the SBA’s quality-assurance backstop for every 7(a), PPP and COVID EIDL loan on the books.
Bottom line: Congress, GAO, OIG, and headline fraud totals have the SBA under a microscope. Post-funding reviews are how the agency shows it can police the $1.2 trillion it rushed out the door.
Risk-algorithm flags– Large balance, rapid delinquencies, linked federal debts
Random sampling – Quality-control pulls to keep lenders honest
Event-driven – Guaranty-purchase request, default, DOJ / OIG referral
Program directive – Blanket sweeps of PPP ≥ $2 million or 2024-2025 fintech campaigns
A certified public accountant (CPA) applied for an SBA COVID EIDL Loan and received an initial disbursement of $150,000. Months later, the SBA contacted him and offered additional COVID money for his business. The CPA applied for and received a modified increase in a second disbursement. However, despite paying the loan under the terms of the agreement, in 2025, the SBA contacted him after conducting a regulatory compliance review, accusing him of fraud. The SBA auditor alleged that his 2019 revenue was “overstated,” implying fraud—even though SBA initially validated the same IRS transcript from 2019 during the CPA’s 2021 increase request which was prompted by SBA personnel inviting him to apply for additional funding
As a result, the CPA is now facing default, acceleration of the loan (which terminates the remaining 25 year repayment schedule), referral to OIG / DoJ for further investigation of AFCA or FCA charges, or aggressive collection action through the Bureau of Fiscal Service's Treasury Offset and Cross-Servicing Programs.
A small business entrepreneur applied for SBA COVID EIDL as her newly minted yoga and pilates business was shut down by the governor of her state. Since her business did not meet the criteria of an "essential business," no revenue coming in as her clientele was forced to "shelter in place" due to COVID-19 restrictions. When the SBA first opened the COVID PPP and EIDL loan programs to small businesses, she immediately submitted an application for the EIDL loan as this was the only way for her business to survive. The SBA loan specialist who reviewed her application materials, however, canceled her EIDL application indicating that her business was not eligible since she only started her business in January 2020 - just 3 months before the pandemic declaration. Her business never received any COVID EIDL funds. Fast forward to 2025, and she submitted an application for a 7(a) loan for her business which survived the pandemic without any SBA COVID assistance. The participating lender reviewing her 7(a) loan application sent it to the SBA as part of the 7(a) guaranty and authorization process. That submission apparently triggered an SBA review.
As a result of this compliance review, the SBA not only denied the 7(a) loan authorization and guaranty, but also debarred the business and the owner/officer from participating in SBA loan programs because of the investigator's claim she fraudulently applied for an otherwise ineligible COVID loan in 2020 - even though she never received any government funds. Because of this, she has received permanent SAM.gov exclusion, no SBA financing and reputational damage. Moreover, she could still face either an AFCA or FCA charge by OIG or DoJ as a result of certifying that her business was in need of SBA COVID EIDL funds and was eligible.
Two or more red flags? Assume your file is being queued for SBA audit.
Must-Do Actions Before the Notice Arrives
• Build a digital file now
• Match revenue/payroll data across all filings and submissions to the SBA
• Maintain bank, credit card statements & invoices and tax return filings for six-year retention up to ten years (per the statute of repose due to delayed discovery of fraud)
• Respond to SBA information demand requests (IDR) within the deadline
• Monitor SAM.gov & CAIVRS for surprise listings and exclusions
Must-Do Actions Before the Notice Arrives
• Verify equity injection, lien perfection, and 1502 timeliness
• Keep risk ratings clean; OCRM now grades quarterly
• Answer SBA information requests within the deadline
Must-Do Actions Before the Notice Arrives
Transparent communication through experienced legal counsel —inconsistencies could prevent or resolve issues early and cost far less than subsequent fraud referrals to OIG / DoJ and/or False Claims Act charges
A post-funding compliance review can turn a forgiven or settled COVID loan into a white-knuckle legal battle years later. Honest paperwork errors, a canceled application, or a mismatch the SBA missed in 2020 can be recast as fraud in 2025.
If you receive a “business closure review,” “post-funding compliance review,” or any sudden SBA document request:
Contact experienced SBA loan defense counsel immediately.
Our SBA Attorneys has guided thousands of borrowers through reviews, contested or negotiated debts assessed against owners, officers and guarantors, and litigated cases before the SBA Office of Hearings & Appeals (OHA) Court before presiding Administrative Law Judges (ALJs).
Schedule a confidential strategy session today → keep your success story from becoming the next SBA nightmare tale. If you believe your SBA COVID PPP or EIDL loan could be targeted for enforced collection, business closure review, audit, investigation or an AFCA claim, contact us 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.
Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure
Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements
Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.
Client’s small business obtained an SBA 7(a) loan for $150,000. He and his wife signed personal guarantees and pledged their home as collateral. The SBA loan went into default, the term or maturity date was accelerated and demand for payment of the entire amount claimed was made. The SBA lender’s note gave it the right to adjust the default interest rate from 7.25% to 18% per annum. The business filed for Chapter 11 bankruptcy but was dismissed after 3 years due to its inability to continue with payments under the plan. Clients wanted to file for Chapter 7 bankruptcy, which would have been a mistake as their home had significant equity to repay the SBA loan balance in full as the Trustee would likely seize and sell the home to repay the secured and unsecured creditors. However, the SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection to the SBA. Clients then received the SBA Official 60-Day Notice and hired the Firm to respond to it and negotiate on their behalf. Clients disputed the SBA’s alleged balance of $148,000, as several payments made to the SBA lender during the Chapter 11 reorganization were not accounted for. To challenge the SBA’s claimed debt balance, the Firm Attorneys initiated expedited discovery to obtain government records. SBA records disclosed the true amount owed was about $97,000. Moreover, because the Clients’ home had significant equity, they were not eligible for an Offer in Compromise or an immediate Release of Lien for Consideration, despite being incorrectly advised by non-attorney consulting companies that they were. Instead, our Firm Attorneys recommended a Workout of $97,000 spread over a lengthy term and a waiver of the applicable interest rate making the monthly payment affordable. After back and forth negotiations, SBA approved the Workout proposal, thereby saving the home from imminent foreclosure and reducing the Clients' liability by nearly $81,000 in incorrect principal balance, accrued interest, and statutory collection fees.
Our firm successfully facilitated the SBA settlement of a COVID-19 Economic Injury Disaster Loan (EIDL) f borrower received an SBA disaster loan of $150,000, but due to the severe economic impact of the COVID-19 pandemic, the business was unable to recover.
Despite the borrower’s efforts to maintain operations, shutdowns and restrictions significantly reduced the customer base and revenue, making continued operations unsustainable. After a thorough business closure review, we negotiated with the SBA, securing a resolution where the borrower paid only $6,015 to release the collateral, with no further financial liability for the owner/officer.
This case demonstrates how businesses affected by the pandemic can navigate SBA loan settlements effectively. If your business is struggling with an SBA EIDL loan, we specialize in SBA Offer in Compromise (SBA OIC) solutions to help close outstanding debts while minimizing financial burden.
Clients obtained an SBA 7(a) loan for $324,000 to buy a small business and its facility. The business and real estate had an appraisal value of $318,000 at the time of purchase. The business ultimately failed but the participating lender abandoned the business equipment and real estate collateral even though it had valid security liens. As a result, the lender recouped nearly nothing from the pledged collateral, leaving the business owners liable for the deficiency balance. The SBA paid the lender the 7(a) guaranty money and was assigned ownership of the debt, including the right to collect. However, the clients never received the SBA Official 60-Day Notice and were denied the opportunity to negotiate an Offer in Compromise (OIC) or a Workout directly with the SBA before being transferred to Treasury's Bureau of Fiscal Service, which added an additional $80,000 in collection fees. Treasury garnished and offset the clients' wages, federal salary and social security benefits. When the clients tried to negotiate with Treasury by themselves, they were offered an unaffordable repayment plan which would have caused severe financial hardship. Clients subsequently hired the Firm to litigate an Appeals Petition before the SBA Office & Hearings Appeals (OHA) challenging the legal enforceability and amount of the debt. The Firm successfully negotiated a term OIC that was approved by the SBA Office of General Counsel, saving the clients approximately $205,000.
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