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What the SBA’s 43% Workforce Reduction Could Mean for Your SBA Loan in 2025

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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What the SBA’s 43% Workforce Reduction Could Mean for Your SBA Loan in 2025

Trump Administration Reorganization | Federal Court Injunction | SBA Loan Borrowers & Guarantors

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?

Key Features of the SBA Reorganization

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

The Legal Cloud Over the Plan

  • Preliminary injunction (May 23, 2025) halts execution of the February 11, 2025 Executive Order that drives agency cuts, pending appeal to the 9th Circuit (NPR).
  • Court found that large-scale “reductions in force” require explicit congressional authorization, which the Trump Administration has not yet secured.
  • Timeline uncertainty: Even if the Trump Administration prevails, RIF notices and realignment could take 6-12 months to implement; if it loses, staffing could remain frozen for the rest of FY 2025.

Practical Impacts for SBA Borrowers & Guarantors

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)

Action Plan for Small-Business Owners and Guarantors

  1. Audit your loan file – make sure you have a complete  copy of notes, payment history, and correspondence before offices merge or relocate.
  2. Calendar critical dates – limitation periods for appeals, OIC submission windows, and Treasury offset hearings remain unchanged regardless of staffing.
  3. Document every interaction – with potential increase of referrals and hand-offs between SBA, Treasury and new disaster loan units, a clear paper trail is your best chance to preserve the administrative record and exhaust your federal administrative remedies.
  4. Consult qualified counsel – research legal strategies such as Administrative Procedure Act claims or injunctions to preserve rights if agency delays prejudice your case.

How Our Firm Can Help

At Protect Law Group, our Firm Attorneys are well-versed in SBA debt resolution, OHA litigation and Treasury AWG Hearing cases. We are already:

  • Tracking the litigation in the 9th Circuit that could upend the reorganization timetable.
  • Monitoring internal SBA guidance memos on case transfers and staffing ceilings.
  • Preparing contingency arguments citing due process violations when borrower case files languish during the transition.

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.

Why Hire Us to Help You with Your Treasury or SBA Debt Problems?

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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

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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

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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.

$383,000 SBA 7A LOAN - NEGOTIATED RELEASE OF LIEN FOR CONSIDERATION

$383,000 SBA 7A LOAN - NEGOTIATED RELEASE OF LIEN FOR CONSIDERATION

Clients executed several trust deeds pledging seven (7) real estate properties and unconditional personal guarantees for an SBA 7(a) loan from the participating lender. The clients' small business failed and eventually defaulted on repayment of the loan exposing all collateral pledged by the clients. The SBA subsequently acquired the loan balance from the lender, including the right to liquidate  and collect all pledged collateral pursuant to the trust deed instruments.

The Firm was hired to negotiate separate release of lien proposals for all 7 real estate properties. In preparation for the work assignment, the Firm Attorneys initiated discovery  to secure records from the SBA and Treasury's Bureau of Fiscal Service. After reviewing the records and understanding the interplay between the lender and the SBA, the attorneys then prepared, submitted and negotiated the release of lien (ROL) for each of the 7 real estate properties for consideration.

After submitting the proposals, the assigned SBA Loan Specialists approved each ROL package - significantly reducing the total SBA debt claimed.

$150,000 SBA 7A LOAN - NEGOTIATED WORKOUT AGREEMENT

$150,000 SBA 7A LOAN - NEGOTIATED WORKOUT AGREEMENT

The client personally guaranteed an SBA 7(a) loan for $150,000. His business revenue decreased significantly causing default and an accelerated balance of $143,000. The client received the SBA's Official 60-day notice with the debt scheduled for referral to the Treasury’s Bureau of Fiscal Service for aggressive collection in less than 26 days. We were hired to represent him, respond to the SBA's Official 60-day notice, and prevent enforced collection by the Treasury and the Department of Justice. We successfully negotiated a structured workout with an extended maturity date that included a reduction of the 14% interest rate and removal of substantial collection fees (30% of the loan balance), effectively saving the client over $242,000.

$150,000 SBA 7A LOAN - NEGOTIATED STRUCTURED WORKOUT AGREEMENT

$150,000 SBA 7A LOAN - NEGOTIATED STRUCTURED WORKOUT AGREEMENT

Client personally guaranteed SBA 7(a) loan for $150,000. COVID-19 caused the business to fail, and the loan went into default with a balance of $133,000. Client initially hired a non-attorney consultant to negotiate an OIC. The SBA summarily rejected the ineligible OIC and the debt was referred to Treasury’s ureau of Fiscal Service for enforced collection in the debt amount of $195,000. We were hired to intervene and initiated discovery for SBA and Fiscal Service records. We were able to recall the case from Fiscal Service back to the SBA. We then negotiated a structured workout with favorable terms that saves the client approximately $198,000 over the agreed-upon workout term by waiving contractual and statutory administrative fees, collection costs, penalties, and interest.

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