SBA COVID Loan Crackdown: What Small Business Borrowers and Guarantors Need to Know in the Kelly Loeffler Era
SBA COVID Loan Crackdown: What Small Business Borrowers and Guarantors Need to Know in the Kelly Loeffler Era
Defaulting on a SBA loan with the Trump Administration's reduction in SBA staff will impact your chances for resolution. Learn about the impact and how to protect yourself.
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On March 21, 2025 the U.S. Small Business Administration (SBA) unveiled a sweeping agency-wide reorganization that will eliminate roughly 2,700 positions—about 43% of its workforce—returning headcount to pre-pandemic levels. SBA Administrator Kelly Loeffler framed the cuts as a move to “do more with less” and refocus on the SBA’s core lending and disaster-relief missions (Small Business Administration).
Less than two months later, a federal judge in San Francisco issued a preliminary injunction pausing the broader Trump executive-branch down sizing plan, citing potential statutory overreach and noting that the SBA is on the list of agencies targeted for up-to-40 % layoffs (NPR).
For borrowers and guarantors already wrestling with COVID-EIDL, 7(a) or 504 obligations, this one-two punch of reorganization and litigation raises urgent questions: Will my loan servicing slow down? Will appeal rights change? What happens if my case is already at Treasury?
Change: 43% staff reduction
What SBA Says: Saves $435M/yr; trims “mission creep” (Small Business Administration)
What It Could Mean for You: Fewer case officers in servicing & OIC/Workout units; longer response times
Change: Centralized fraud & risk review
What SBA Says: Moves oversight to CFO’s office (Small Business Administration)
What It Could Mean for You: Higher scrutiny on eligibility, investigations/audits, enforcement & OIC/Workout proposals
Change: Disaster-loan servicing moved to new Office of Disaster Recovery & Resilience
What SBA Says: Cross-trains field staff (Small Business Administration)
What It Could Mean for You: Possible reassignment of your case file and new points of contact
Change: Sunset of pandemic-era staff & programs
What SBA Says: Eliminates Community Navigator, DEI pilots, Green Lender Initiative (Small Business Administration)
What It Could Mean for You: Reduced outreach and counseling resources for distressed businesses
Scenario: COVID-EIDL borrower in default
Likely Effect: Potential backlog as staff positions are abolished or reassigned
Proactive Step: Submit settlement or hardship requests now before staffing changes take hold
Scenario: 7(a) or 504 under review in response to Official 60-Day Due Process Notice before referral to Treasury's Bureau of Fiscal Service
Likely Effect: File reviews may slow; centralized risk unit may reopen closed matters
Proactive Step: Keep meticulous records & be prepared to respond to new document requests
Scenario: Repayment (i.e., Offer-in-Compromise (OIC) or Workout) pending
Likely Effect: Decision windows could lengthen unreasonably or summary denials and rejections may soon follow without a reasonable basis
Proactive Step: Request status updates in writing every 30 days; document prejudicial effect from delay; consider request for reconsideration if SBA issues summary denial or rejection
Scenario: FOIA/PA discovery and records inspection requests
Likely Effect: FOIA/PA queue historically understaffed; cuts may compound delay
Proactive Step: Request status updates every 30 days; if no progress, file OHA administrative appeal or engage in OGIS mediation to expedite or compel compliance
Scenario: OHA Appeals contesting referral to Treasury’s Bureau of Fiscal Service
Likely Effect: If SBA recall authority or staff is reduced, expect many more files to be referred to or remain at Treasury
Proactive Step: Consider SBA Office of Hearings & Appeals (OHA) litigation for recall based on due process or APA violations and leverage negotiations or proceed with adjudication to a final Decision by the United States Administrative Law Judge (ALJ)
At Protect Law Group, our Firm Attorneys are well-versed in SBA debt resolution, OHA litigation and Treasury AWG Hearing cases. We are already:
If you have a COVID-EIDL, 7(a), 504, Physical Disaster or PPP loan problem—or need to address a Treasury offset—contact us today for a Case Evaluation.
Source: https://www.nytimes.com/2025/05/23/business/economy/trump-small-business-administration.html
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.
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.
Small business and guarantors obtained an SBA COVID-EIDL loan for $1,000,000. Clients defaulted causing SBA to charge-off the loan, accelerate the balance and refer the debt to Treasury's Bureau of Fiscal Service for collection. Treasury added nearly $500,000 in collection fees totaling $1,500,000. Clients were served with the SBA's Official 60-Day Notice and exercised the Repayment option by applying for the SBA’s Hardship Accommodation Plan. However, their application was summarily rejected by the SBA without providing any meaningful reasons. Clients hired the Firm to represent them against the SBA, Treasury and a Private Collection Agency. After securing government records through discovery, we filed an Appeals Petition with the SBA Office of Hearings & Appeals (OHA) court challenging the SBA's referral of the debt to Treasury. During litigation and before the OHA court issued a final Decision and Order, the Firm successfully negotiated a reinstatement and recall of the loan back to the SBA, a modification of the original repayment terms, termination of Treasury's enforced collection and removal of the statutory collection fees.
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.
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