SBA OIG Report Highlights Missed Collection Opportunities on Delinquent COVID 19 EIDLs

Introduction

The 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.

Key Findings from OIG Audit Report 25‑23

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:

• Failing to perfect security interests in borrower deposit accounts
• Not conducting post-default site visits
• Neglecting to report all delinquent obligors to credit bureaus
• Not referring any loans to the Department of Justice (DOJ) for litigation

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.

OIG Recommendations

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.

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Implications for SBA Borrowers

Borrowers with delinquent COVID‑19EIDLs should be aware of several key takeaways:

• Collections may intensify as SBA works to address OIG findings before the March 2026 servicing deadline.
• Borrowers not reported to credit bureaus could still be flagged retroactively.
• Litigation risk remains low but may increase if SBA adjusts its policies in line with federal standards.
• Blanket liens and personal guarantees may still be enforced even after charge-off, particularly in bankruptcy or asset sale contexts.

Conclusion

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.

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