U.S. federal regulators have begun holding small businesses and nonprofits accountable for delinquencies on about 1 million government loans issued during the pandemic, worth $20 billion in face value.
The Small Business Administration this week began referring abandoned coronavirus disaster loans with balances of $100,000 or less to the Treasury Department for recovery, according to reports. Wall Street Journal.
A further large sum of 10,000 coronavirus loan arrears has already been transferred to the Treasury.
Unlike private companies, the federal government does not need court permission to begin collecting unpaid debts, the newspaper reported.
In some cases, government benefits and tax refunds can also be seized. Coronavirus loans of $200,000 or more come with personal guarantees and require borrowers to use personal assets to repay the debt.
The COVID-19 Loan Program will begin on January 1, 2022 and run from May 16, 2022, and will support around 4 million small and medium-sized businesses that need financial relief to recover from the financial impact of the pandemic. Provided loans to nonprofit organizations.
However, the funds have not returned to the SBA, which has already written off roughly 20% of its $390 billion coronavirus disaster loans as losses, the paper reported.
According to news outlets, write-offs include referrals to the Treasury Department and other circumstances such as bankruptcy, fraud, and death of the borrower.
The SBA said this amount is in line with its projections because some of the defaulted loans went to borrowers who had no intention of repaying their debts.
More than $136 billion in coronavirus disaster loans, or about a third of the total, had signs of possible fraud, the SBA’s Office of Inspector General told the Journal.
However, the SBA claims the amount of fraud is much lower.
Borrowers also said they defaulted on their pandemic-era loans because they continued to experience financial difficulties after the pandemic, shut down their operations completely, or were in a “weak financial position” at the time they sought the loan. There is. , according to the Journal.
Some cited a lack of communication from government officials, which has repeatedly changed policies and created new challenges for borrowers.
“I talk to dozens of people every week who are dealing with the SBA’s struggles to provide these services,” said Jason Milleisen, who advises struggling SBA borrowers. told the Journal.
He noted that borrowers often receive conflicting information from different SBA employees, adding, “People are very confused.”
For example, the SBA initially allowed borrowers to defer loan payments for up to 12 months, but has since extended the deferral period twice to up to 30 months.
Meanwhile, fixed interest rates on loans (3.75% for small businesses and 2.75% for nonprofits) continued to accumulate.
Unlike the coronavirus-era federal Paycheck Protection Program, disaster loans are designed to be repaid, the Journal reported.
As a result, borrowers continue to face financial hardship.
To further assist, SBA has also rolled out a series of hardship accommodations for borrowers still facing short-term challenges.
Most recently, the SBA last month expanded eligibility for the Hardship Relief Plan, advising defaulting borrowers to apply if their loans have not been sent to the Treasury Department.
According to the SBA, admission to HAP allows borrowers to avoid the collection process.
According to government agencies WebsiteBorrowers are eligible to enroll in the program if they have loans that are in the process of being repaid, including past-due loans or loans that are more than 120 days past due.
Once enrolled, small businesses and nonprofits can pay just 10% of their regular payments, or a minimum of $25, for six months without having to catch up on payments, the SBA said.
