US to heighten efforts to collect billions in unpaid COVID loans

Officials aim to recoup $30b in decision reversal

The Biden administration plans to more aggressively pursue thousands of small businesses with past-due pandemic loans, reversing an earlier policy that saw the US government stop short of trying to collect an estimated $30 billion in delinquent debt.

The new approach, announced Thursday, arrives months after federal watchdogs and congressional lawmakers first blasted the administration for its leniency, warning that the government risked breaking the law — and exacerbating its losses — if it didn’t try harder to get the money back.

At the height of the coronavirus pandemic, Congress created two generous stimulus programs to help cash-starved firms stay afloat: the COVID-19 Economic Injury Disaster Loan, known as EIDL, and the Paycheck Protection Program, or PPP. Over their life span, the lending initiatives provided more than $1 trillion in assistance to companies large and small, helping to blunt the worst economic crisis since the Great Depression.

Congress allowed borrowers to request their PPP loans be forgiven, while those who obtained aid under EIDL were supposed to repay the money. Before most of those EIDL bills became due, however, the Small Business Administration quietly enacted a policy in April 2022 to halt some collection activities on past-due loans of $100,000 or less, The Washington Post first reported earlier this year.

Explaining its policy, SBA officials said, at the time, it would have cost too much money to refer each delinquent loan to the Treasury Department, which can impose the toughest punishments on late borrowers, including wage garnishment. But the rationale troubled the agency’s inspector general, Hannibal “Mike” Ware, whose office in September warned that the SBA policy “could incentivize other COVID-19 EIDL recipients to stop paying on their loans.”

In its investigation, the watchdog estimated that there were about $62 billion in pastdue EIDL loans worth $100,000 or less as of March. Earlier, the inspector general found an additional $1.1 billion in unpaid PPP loans that the government had charged off as a loss and never referred to the Treasury Department for collection activities.

By its own measurement, the SBA on Thursday estimated there are about $30 billion in PPP and EIDL loans worth up to $100,000 that could be subject to stiffer sanctions next year. The potentially staggering loss amounts to about 2.5 percent of those programs’ total portfolios, the agency said.