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
Book a Consultation CallIn 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:
SBA continues post-funding compliance and business closure reviews of PPP and COVID-19 EIDL loans
Statutes of limitation for pandemic loan fraud now extend up to 10 years
SBA is drafting and executing recovery plans for loans deemed ineligible or improper
Billions of dollars in pandemic loans remain under review or unresolved
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:
Bring False Claims Act cases seeking treble damages and penalties
Work with federal agencies, inspectors general, and whistleblowers (relators)
Target fraud involving federal lending and pandemic relief programs
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:
Borrowers were allowed to self-certify eligibility
Many applications relied on estimated or rapidly prepared financial data
SBA now acknowledges limited front-end controls during loan issuance
Post-disbursement reviews are uncovering inconsistencies years later
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:
FCA litigation in federal court
AFCA litigation before the SBA Office of Hearings & Appeals Court (OHA)
Parallel Treasury collection actions
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:
Significant damages (three times or one-half times the loan proceeds)
Statutory penalties per false claim
Legal fees and reputational harm
Collateral consequences (debarment, offsets, liens)
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:
SBA and OIG eligibility challenges
Administrative False Claims Act litigation defense before the SBA OHA Court
DOJ False Claims Act risk mitigation
Treasury cross-servicing and offset defense
FOIA-based loan file discovery and records review
Bankruptcy coordination where appropriate
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'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.
Our firm successfully resolved an SBA 7(a) loan default in the amount of $212,000 on behalf of an individual guarantor. The borrower’s business experienced a significant downturn in revenue and was unable to sustain operations, ultimately leading to closure and a remaining personal guaranty obligation.
After conducting a thorough financial review and preparing a comprehensive SBA Offer in Compromise (SBA OIC) submission, we negotiated directly with the SBA and lender to achieve a settlement of $50,000—approximately 24% of the outstanding balance. This favorable resolution released the guarantor from further personal liability and provided the opportunity to move forward free from the burden of enforced collection.
Our firm successfully negotiated an SBA offer in compromise (SBA OIC), settling a $974,535.93 SBA loan balance for just $18,000. The offerors, personal guarantors on an SBA 7(a) loan, originally obtained financing to purchase a commercial building in Lancaster, California.
The borrower filed for bankruptcy, and the third-party lender (TPL) foreclosed on the property. Despite the loan default, the SBA pursued the offerors for repayment. Given their limited income, lack of significant assets, and approaching retirement, we presented a strong case demonstrating their financial hardship.
Through strategic negotiations, we secured a favorable SBA settlement, reducing the nearly $1 million debt to a fraction of the amount owed. This outcome allowed the offerors to resolve their liability without prolonged financial strain.
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