Navigating the SBA’s Collection Efforts on COVID-19 Loans

Lindsey Goeddel

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During the height of the COVID-19 pandemic, the Small Business Administration (SBA) launched various loan programs, such as the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program, to support businesses grappling with unprecedented economic challenges. These programs were lifelines for many, providing essential funds to keep businesses afloat. However, as we move forward, the SBA has started to collect on these loans, leading to new challenges and questions for borrowers.

Understanding the Collection Process

The collection efforts by the SBA involve ensuring that borrowers repay the loans according to the terms agreed upon during the application process. Here’s what borrowers need to know:

  1. Repayment Terms:
  • PPP Loans: These loans are forgivable if used for eligible expenses, such as payroll, rent, and utilities, so long as if certain conditions are met. However, any portion not forgiven must be repaid.
  • EIDL Loans: These are not forgivable and must be repaid with interest over a 30-year term, with an initial deferment period of one year, during which no payments are required but interest accrues. Starting in March, the SBA began referring EIDL Loans with balances of $100,000 or less that are in default to the Treasury Department for collection. To recoup the debt owed, the Treasury Department may require your employer to garnish your wages or may withhold money from a taxpayer’s tax refund or other federal payments otherwise due to a taxpayer. The ultimate amount due to the Treasury Department is not simply the amount borrowed and the interest incurred while under the purview of the SBA. It also includes the interest charged by the Treasury Department until such time as the loan and interest are repaid in full.
  1. Forgiveness Applications:
  • PPP Loan Forgiveness: For a PPP Loan to be forgiven, you must apply for forgiveness and provide documentation showing that the loan was used for eligible expenses. The SBA reviews these applications to determine the amount eligible for forgiveness.
  • EIDL Loan Forgiveness: There is no forgiveness of EIDL Loans and there is no longer the option of negotiating a “compromise” with the SBA with respect to EIDL Loans.
  • Deadlines: It’s crucial for you to be aware of and adhere to deadlines for PPP forgiveness applications to avoid missing out on potential loan forgiveness.
Tips for Managing SBA Loan Repayments
  1. Stay Organized:
  • Keep all loan-related documents, including the original loan agreement, detailed records and receipts for expenses paid with loan funds, and any communications from the SBA, in a dedicated file.
  • Use accounting software or hire a professional accountant to help track expenses and prepare necessary documentation.
  1. Establish a Repayment Plan:
  • Plan for the repayment of any non-forgivable portions of the loans, including interest occurred. Pay close attention to when amounts are due.
  • Manage cash flow to ensure the repayment obligations can be met without jeopardizing your financial stability.
  • Consult with financial advisors or legal professionals for guidance on loan forgiveness applications, compliance with repayment terms, and strategies to manage cash flow effectively.
  1. Communicate with the SBA:
  • Stay vigilant about communications from the SBA and respond promptly to avoid complications, including potential defaults.
  • For any phone calls held with persons at the SBA, send a follow-up email confirming the conversation in writing. Reference your loan number in the subject line of each communication.
  • If you encounter difficulties in repaying your loan, contact the SBA proactively. They may offer solutions such as restructuring the loan or providing additional guidance on managing repayments.
  • Keep in mind those working at the SBA are not responsible for a business’s inability to repay amounts owed. Remain professional and courtesy.
  1. Plan for Future Financial Health:
  • Integrate loan repayments into your long-term financial planning. Regularly review your budget and adjust as necessary to ensure that loan repayments are sustainable alongside other business expenses.
Conclusion

The SBA’s collection efforts on COVID-19 loans mark an important phase in the economic recovery process. Be certain to understand the repayment process, stay organized, and seek professional advice to navigate this period successfully. By proactively managing loan obligations, you can not only comply with SBA requirements but also ensure continued financial health and stability in a post-pandemic world.

ABOUT THE AUTHOR

PARTNER

Lindsey joined Milgrom & Daskam in October 2022 and focuses her practice on business and corporate law.  She supports clients in the handling of mergers and acquisitions, corporate formation and governance, commercial transactions, operational matters, and business development, amongst other corporate issues.  

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