SBA Chief Maria Contreras-Sweet's Commencement Speech At Whittier
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OIG’s August 2025 audit reveals SBA failed to use key tools in collecting $47B in delinquent COVID‑19 EIDLs. Learn what it means for borrowers now.
Book a Consultation CallThe U.S. Small Business Administration’s Office of Inspector General (OIG) released Audit Report 25‑23in August 2025, scrutinizing SBA’s efforts to collect on delinquent COVID‑19 Economic Injury Disaster Loans (EIDLs). With over $47 billion charged off andless than 1% recovered, the report highlights serious deficiencies in SBA’s debt recovery processes. For small business borrowers, especially those still navigating loan obligations, the findings signal potential changes in enforcement and underscore the need for proactive legal strategy.
1. $47 Billion Charged Off with Minimal Recovery
As of December 2024, SBA had charged off 369,588 COVID‑19 EIDLs totaling over $47 billion—none of which involved confirmed or suspected fraud. Less than 1% of those loan amounts were recovered, primarily through borrower-initiated actions such as business closures, bankruptcy filings, or voluntary repayments.
2. Inadequate Use of Federal Collection Tools
The OIG found that SBA did not exhaust key debt collection remedies before referring delinquent loans tothe U.S. Department of the Treasury, as required by law. These missed actions included:
These omissions likely reduced recovery prospects and failed to safeguard taxpayer interests.
3. Short Liquidation Timeframes Undermined Collections
Audit data revealed that 88% of charged-off loans were in liquidation for an average of only 3 days—far shorter than the 67-day average for loans that yielded partial recovery. In some cases, SBA charged off loans the same day they entered liquidation,without any documentation of substantial recovery efforts beyond automated notices.
4. Security Interests in Bank Accounts Not Perfected
Although SBA filed blanket liens under UCC law, it did not perfect its interest in borrower bank accounts bysecuring control agreements with financial institutions. Without these agreements, SBA was unable to claim account balances upon default—a missed opportunity for significant recovery.
5. Minimal Reporting to Credit Bureaus
The OIG found that over 94% of delinquent borrowers were not reported to credit bureaus, undermining the effectiveness of federal lending safeguards. SBA’s reporting systems lacked verification controls, which left many delinquent loans unflagged in credit databases—potentially enabling defaulted borrowers to access new federal loans.
6. No DOJ Referrals for Litigation
Despite its authority to coordinate with DOJ on large delinquent debts, SBA did not refer any EIDL loans to the DOJ for litigation. Instead, the agency relied entirely on Treasury’s Cross‑Servicing Program—which, due to a 2024 policy change, returned these loans to SBA for servicing until March 2026.
In its August 2025 audit report, the Office of Inspector General (OIG) issued three key recommendations to improve the SBA’s collection of delinquent COVID-19 EIDLs. First, OIG urged SBA to conduct a study to determine when post-default site visits would be cost-effective, and to develop policies ensuring such visits are performed to identify and liquidate collateral. SBA disagreed, arguing that most collateral covered by its blanket liens held little recoverable value, that site visits would be resource-intensive, and that their cost would outweigh potential benefits. As such, this recommendation remains unresolved.
Second, OIG recommended that SBA verify all delinquent borrowers and guarantors are reported to credit bureaus in a timely manner. SBA agreed and committed to adding functionality in its ETRAN system to log and track credit bureau submissions, with an implementation target date of June 2026. This recommendation is considered resolved but pending final action.
Finally, OIG recommended SBA establish a reasonable standard for referring delinquent COVID-19 EIDLs to the Department of Justice (DOJ) for litigation. SBA rejected this proposal, maintaining that referrals to Treasury remain the most effective collection method. The agency emphasized that DOJ referrals are resource-intensive and less effective than Treasury’s administrative offset processes. SBA did, however, acknowledge that it would coordinate with DOJ in cases involving fraud. Because OIG had specifically excluded fraud cases from its review, this recommendation also remains unresolved.
Borrowers with delinquent COVID‑19EIDLs should be aware of several key takeaways:
The OIG’s audit paints a sobering picture of SBA’s limited recovery on delinquent COVID‑19 EIDLs—and a possible shift toward more assertive collection efforts in the future. Borrowers facing delinquency or navigating default should assess their legal exposure and consider their options now.
If your business is struggling with anSBA loan or facing collection actions, contact Protect Law Group today to schedule a confidential consultation with an attorney experienced in SBA debt resolution.
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.
Our firm successfully resolved an SBA 7a loan in the original amount of $364,000 for a New Jersey-based borrower. The client filed Chapter 7 bankruptcy but the mortgage on his real estate securing the loan remained in place. The available equity amounted to $263,470 and the deficiency equaled $317,886.
We gathered the pertinent documentation and prepared a comprehensive collateral analysis. We negotiated directly with the SBA, obtaining a full release of the mortgage for $80,000.
Clients' 7(a) loan was referred to Treasury's Bureau of Fiscal Service for enforced collection in 2015. They not only personally guaranteed the loan, but also pledged their primary residence as additional collateral. One of the clients filed for Chapter 7 bankruptcy thinking that it would discharge the SBA 7(a) lien encumbering their home. They later discovered that they were mistakenly advised. The Firm was subsequently hired to review their case and defend against a series of collection actions. Eventually, we were able to negotiate a structured workout for $180,000 directly with the SBA, saving them approximately $250,000 (by reducing the default interest rate and removing Treasury's substantial collection fees) and from possible foreclosure.
Client personally guaranteed an SBA 7(a) loan for $100,000 from the lender. The SBA loan went into early default in 2006 less than 12 months from disbursement. The SBA paid the 7(a) guaranty monies to the lender and subsequently acquired the deficiency balance of about $96,000, including the right to collect against the guarantor. However, the SBA sent the Official 60-Day Due Process Notice to the Client's defunct business address instead of his personal residence, which he never received. As a result, the debt was transferred to Treasury's Bureau of Fiscal Service where substantial collection fees were assessed, including accrued interest per the promissory note. Treasury eventually referred the debt to a Private Collection Agency (PCA) - Pioneer Credit Recovery, Inc. Pioneer sent a demand letter claiming a debt balance of almost $310,000 - a shocking 223% increase from the original loan amount assigned to the SBA. Client's social security disability benefits were seized through the Treasury Offset Program (TOP). Client hired the Firm to represent him as the debt continued to snowball despite seizure of his social security benefits and federal tax refunds as the involuntary payments were first applied to Treasury's collection fees, then to accrued interest with minimal allocation to the SBA principal balance.
We initially submitted a Cross-Servicing Dispute (CSD) challenging the referral of the debt to Treasury based on the defective notice sent to the defunct business address. Despite overwhelming evidence proving a violation of the Client's Due Process rights, the SBA still rejected the CSD. As a result, an Appeals Petition was filed with the SBA Office of Hearings & Appeals (OHA) Court challenging the SBA decision and its certification the debt was legally enforceable in the amount claimed. After several months of litigation before the SBA OHA Court, our Firm Attorney successfully negotiated an Offer in Compromise (OIC) Term Workout with the SBA Supervising Trial Attorney for $82,000 spread over a term of 74 months at a significantly reduced interest rate saving the Client an estimated $241,000 in Treasury collection fees, accrued interest (contract interest rate and Current Value of Funds Rate (CVFR)), and the PCA contingency fee.
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