SBA OIG and DOJ Signal Escalating Enforcement of COVID-Era SBA Loans in 2026. Learn what to expect and how Protect Law Group can help with COVID Loan Audits
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In December 2025, the SBA Office of Inspector General (OIG) issued its Top Management and Performance Challenges Facing the SBA in Fiscal Year 2026, a report that clearly signals a shift from pandemic-era relief to post-payment audits, enforcement, recoveries, and referrals for civil prosecution in Federal District Court or administrative action before the SBA Office of Hearings & Appeals Court.
When read together with the U.S. Department of Justice Civil Division’s June 11, 2025 Enforcement Priorities Memorandum, the message to SBA borrowers is unmistakable:
SBA COVID loans suspected of fraud are increasingly likely to be referred to DOJ for False Claims Act litigation.
The OIG report confirms that:
Importantly, OIG highlights that SBA is coordinating with Treasury, DOJ, and federal law enforcement to claw back funds and pursue enforcement actions.
This coordination is not theoretical—it is operational.
On June 11, 2025, the DOJ Civil Division issued a memorandum directing attorneys to aggressively pursue False Claims Act cases against recipients of federal funds who knowingly submitted false claims or false certifications.
The memorandum authorizes DOJ attorneys to:
While the memo addresses multiple policy areas, its enforcement framework squarely applies to PPP, COVID EIDL, and other SBA-backed loans, which were issued based on borrower certifications regarding eligibility, revenue, use of funds, and necessity.
SBA pandemic loans are particularly vulnerable to FCA and Administrative False Claims Act (AFCA) exposure because:
If SBA determines that a borrower knowingly made a false statement, recklessly disregarded eligibility requirements, or retained funds after learning of ineligibility, the matter may be referred to DOJ for:
The DOJ memorandum makes clear that such civil enforcement is consistent with the Trump Administration’s emphasis on accountability, fraud recovery, and protection of American taxpayer funds.
Sources: U.S. Small Business Administration Office of Inspector General, Report 26-01 (Dec. 18, 2025);
U.S. Department of Justice, Civil Division Enforcement Priorities Memorandum (June 11, 2025).
By the time a DOJ referral occurs, the damage is often already done. FCA and AFCA cases expose borrowers, owners, officers and guarantors to:
Critically, many cases turn on documentation gaps, not intentional fraud.
Early legal intervention—before a referral—is often the difference between administrative resolution and federal litigation.
Our Firm Attorneys focus on pre-referral defense and post-referral litigation strategy, including:
If you received an SBA loan during COVID (PPP and/or EIDL) —and especially if your business closed, restructured, or defaulted—now is the time to assess potential DOJ exposure to FCA or AFCA claims.
SBA COVID loan Borrowers and Guarantors who prepare now will have more options—and better outcomes—than those who wait.
If you have SBA or Treasury debt, contact Protect Law Group today for a Confidential Case Evaluation:
👉 Visit: www.SBA-Attorneys.com
👉 Call: 888-756-9969
👉 Email: Info@ProtectLawGroup.com
Do not wait for your SBA debt to get swept into the backlog. Get ahead of it. Protect yourself and your rights.
Our SBA Attorneys have guided thousands of small businesses through reviews, contested or negotiated debts assessed against owners, officers and guarantors, and litigated cases at the SBA Office of Hearings & Appeals (OHA) Court before presiding Administrative Law Judges (ALJs).
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 personally guaranteed an SBA 7(a) loan to help with a relative’s new business venture. After the business failed, Treasury was able to secure a recurring Treasury Offset Program (TOP) levy against his monthly Social Security Benefits based on the claim that he owed over $1.2 million dollars. We initially submitted a Cross-Servicing Dispute, but then, prepared and filed an Appeals Petition with the SBA Office of Hearings and Appeals (SBA OHA). As a result of our efforts, we were able to convince the SBA to not only terminate the claimed debt of $1.2 million dollars against our client (without him having to file bankruptcy) but also refund the past recurring amounts that were offset from his Social Security Benefits in connection with the TOP levy.
Client's small business obtained an SBA COVID EIDL for $301,000 pledging collateral by executing the Note, Unconditional Guarantee and Security Agreement. The business defaulted on the loan and the SBA CESC called the Note and Guarantee, accelerated the principal balance due, accrued interest and retracted the 30-year term schedule.
The loan was transferred to the Treasury's Bureau of Fiscal Service which resulted in the statutory addition of $90,000+ in administrative fees, costs, penalties and interest with the total debt now at $391.000+. Treasury also initiated a Treasury Offset Program (TOP) levy against the client's federal contractor payments for the full amount each month - intercepting all of its revenue and pushing the business to the brink of bankruptcy.
The Firm was hired to investigate and find an alternate solution to the bankruptcy option. After submitting formal production requests for all government records, it was discovered that the SBA failed to send the required Official 60-Day Pre-Referral Notice to the borrower and guarantor prior to referring the debt to Treasury. This procedural due process violation served as the basis to submit a Cross-Servicing Dispute to recall the debt from Treasury back to the SBA and to negotiate a reinstatement of the original 30-year maturity date, a modified workout, cessation of the TOP levy against the federal contractor payments and removal of the $90,000+ Treasury-based collection fees, interest and penalties.
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.
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