EIDL Loans Are Moving Quietly into Collections

And it’s getting ugly, especially for owners who don’t really understand how the process works

A business owner called me last week, believing he was resolving his Economic Injury Disaster Loan. He wasn’t. It was already in collections—he just didn’t know. It’s a situation that is becoming more common than you might suspect.

When business owners fall behind on their EIDL loans, they sometimes assume they’ll figure something out with the Small Business Administration—maybe buy some time, maybe work out a plan. And then one day, they’re no longer dealing with the SBA. They’re in collections.

The New York Times reported this week that as of June—the latest data available—the SBA had referred more than $75 billion to the Treasury Department for collection. The portfolio had an unpaid principal balance of $279 billion. The loans are often transferred from the SBA to the U.S. Treasury for collection with little warning. This shift feels like it is happening more often and more quickly, blindsiding business owners before they’re ready.

When this happens, the owners are removed from the system. They immediately lose portal access and any hope of flexibility, and they instantly realize that everything has gotten more serious. For the government, it is no longer about helping a business through a tough situation. It’s about getting paid.

Here’s what happens almost every time: Massive fees—up to 30 percent—hit instantly. Collections become relentless. Repayment plans are harsh, often utterly unworkable. I’ve seen borrowers forced onto 36-month plans. Imagine that: They couldn’t keep up with a 30-year loan, and now they’re expected to repay everything plus penalties in just three years. For most owners, that’s impossible.

Here’s what most owners don’t understand: once their loan reaches collections, their options collapse. The window where they might have had options was when the loan was still with the SBA. Once it’s been handed off, they’re dealing with a very different system and a very different set of priorities.  If you think there is legitimate hardship in your story and are determined to try and resolve the situation, our best recommendation is to reach out to your members of Congress to see if they can help. That occasionally gets someone to take a closer look at the file.

If you have concerns about paying back an EIDL loan, here’s my advice: Before contacting anyone for help, organize your paperwork. List how you used your EIDL funds. Verify whether those uses were proper, and gather proof. Make sure your documentation is complete and ready, as requesting assistance will prompt a review of your file.

If you’re considering settling for a reduced payoff, weigh that decision carefully. Understand that settling may keep you from obtaining future SBA loans—including EIDL, 7(a), or 504 loans. If future SBA access matters to you, consult a professional first and be sure you can accept those terms.

I have to admit that my reaction to these situations varies. Sometimes I hear a story, and it’s hard not to feel for the owner. There are real hardship cases where things just didn’t work. And then there are others where the money was used for things that had nothing to do with the business, and it’s harder to feel empathy.

But the reality is, my reaction—and yours—doesn’t really matter once the loan hits collections. The people handling these files aren’t making judgment calls about your story. They’re focused on recovering the money.

The bigger picture here is that we’ve moved into a different phase of all of this. For a while, these loans were about survival. Now they’re about collection. If you’re having trouble with your EIDL loan, be sure to act while it’s still with the SBA. Reach out directly to the agency, ask about available options, and clarify your situation. Waiting just increases the chance that your loan will go to collections, where the solutions are limited, and the terms get worse.