The numbers are staggering. According to a recent investigation by The New York Times, the Small Business Administration has referred more than $75 billion in delinquent Economic Injury Disaster Loans to the U.S. Treasury Department for collections. The SBA's $378 billion COVID-era loan program — once billed as a lifeline for struggling businesses — has become a financial crisis of its own, and small business owners across the country are caught in the middle.
This is not a distant policy debate. It is happening right now, to real people, in every state.
The Scope of the Crisis
The SBA's EIDL program distributed $378 billion in low-interest, 30-year loans during the pandemic. The intent was simple: keep small businesses alive while the economy shut down. But as The New York Times reporter Lydia DePillis documented, the program's unpaid principal balance now stands at $279 billion, and the government is getting aggressive about collecting.
The Bureau of the Fiscal Service — the Treasury arm responsible for collecting federal debts — paid $51 million to debt collectors in 2025 and $65 million in 2026, according to the Times reporting. Those numbers are climbing. And they do not account for the human toll.
The SBA has begun charging off approximately 1 in 5 EIDL loans — roughly 20 percent of the entire portfolio. When a loan is charged off, it does not mean the debt disappears. It means the SBA has given up trying to collect directly and has handed the file to the Treasury Department, where the rules are harsher and the consequences are more severe.
What Happens When Your EIDL Loan Goes to Collections
Many business owners do not realize what "referred to Treasury" actually means until it is too late. Here is the timeline that plays out across the country every day:
Stage 1: Delinquency. After 120 days of missed payments, your EIDL loan is classified as delinquent and eventually charged off by the SBA.
Stage 2: Transfer to Treasury. Your loan file moves from the SBA to the Treasury Department's Bureau of the Fiscal Service. This transfer often happens with little warning. As Ami Kassar, CEO of MultiFunding, wrote in 21 Hats: "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."
Stage 3: The 30% Penalty. The moment your loan hits Treasury collections, a 30 percent collection fee is added to your total balance. If you owed $100,000, you now owe $130,000. If you owed $500,000, you now owe $650,000. This penalty is automatic and non-negotiable.
Stage 4: Loss of Access. You immediately lose access to the SBA portal. Any flexibility you might have had — hardship accommodations, payment plan negotiations, deferment requests — vanishes.
Stage 5: Aggressive Collection. The Treasury Offset Program (TOP) can intercept your federal tax refunds, garnish up to 15 percent of your disposable wages, and offset other federal payments. Private collection agencies are also deployed. One Reddit user, a 71-year-old business owner, shared that their $51,000 EIDL balance had ballooned to $75,000 after fees at Pioneer Collections.
Stage 6: Impossible Repayment Terms. Kassar described what happens next: "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."
The Structural Problem No One Is Talking About
Mitch Goldstone, the CEO of ScanMyPhotos.com and lead plaintiff in a landmark credit card antitrust case, wrote an op-ed in The Hill that cuts to the heart of the issue: the math never worked.
Roughly 90 percent of small businesses do not survive 30 years. The EIDL program issued 30-year loans to businesses that were already in distress. Even if a company's revenue doubled after the pandemic, the debt structure was designed in a way that most borrowers could never realistically repay.
"No responsible lender creates a product whose own data proves it will fail," Goldstone wrote. "Constant deferments are not relief. They are a warning sign."
A Change.org petition titled "Small Businesses Didn't Fail — Government Did" has gathered signatures from business owners who argue that what was presented as emergency relief turned into a 30-year debt trap for over a million small businesses.
The Inspector General Is Watching
The situation is about to get worse, not better. The SBA's Office of Inspector General released Report 25-23, "SBA's Collection Efforts on Delinquent COVID-19 EIDLs," which found that the SBA had not maximized its collection efforts. The report recommended more aggressive use of site visits, collateral liquidation, credit bureau reporting, and Department of Justice referrals for litigation.
As the EIDL Exit team summarized: "The federal government is reassessing how unresolved EIDL loans are monitored, enforced, and collected. Past delays or inconsistencies are being identified so that future oversight, enforcement, and recovery efforts can be more formal, structured, and far-reaching."
The bottom line from the Inspector General's report is clear: greater accountability, clearer enforcement pathways, and a narrowing window for informal resolution.
What Congress Is Doing (And Not Doing)
Senate Bill S. 68, the "Complete COVID Collections Act," would require the SBA to refer all delinquent pandemic-related loans with balances below $100,000 to the Treasury Department for collections. If passed, this would sweep hundreds of thousands of additional small business owners into the Treasury collection system.
Meanwhile, there has been no serious legislative movement toward EIDL loan forgiveness, despite growing calls from business owners and advocacy groups.
Your Options Are Not Gone — But They Are Shrinking
If you are behind on your EIDL loan, the single most important thing to understand is this: your options are dramatically better while your loan is still with the SBA than after it transfers to Treasury.
Once your loan moves to Treasury collections, the 30 percent penalty hits immediately, your portal access disappears, and you are dealing with a collection system that has no interest in your story or your hardship.
Here is what you can do right now:
If your loan is still with the SBA:
- Contact the SBA directly about hardship accommodation options
- Explore whether you qualify for reduced payment plans based on income
- Organize your documentation — how you used EIDL funds, proof of proper use
- Consult with a bankruptcy attorney about Subchapter V as a restructuring option
If your loan has already gone to Treasury:
- Contact your Congressional representative's constituent services office — this has proven effective for some borrowers in getting loans transferred back to the SBA
- Understand your rights to dispute the debt and request a hearing before wage garnishment begins
- Consult with a bankruptcy attorney immediately — the automatic stay in bankruptcy can halt Treasury collection actions
If you are considering bankruptcy:
- Subchapter V bankruptcy was specifically designed for small business owners and allows you to keep operating your business while restructuring debt
- The automatic stay stops all collection activity, including Treasury offsets and wage garnishment
- A Subchapter V plan can restructure your EIDL debt over 3-5 years at terms your business can actually afford
- You do not need to liquidate your business to get relief
The Window Is Closing
Every source we reviewed — the New York Times, the Inspector General, legal experts, financial advisors — agrees on one point: waiting makes everything worse. The enforcement apparatus is getting more organized, the penalties are getting steeper, and the informal resolution options are disappearing.
If you are a small business owner struggling with EIDL debt, the time to understand your options is now — not after your loan has been referred to Treasury, not after the 30 percent penalty has been added, and not after your tax refund has been seized.
This article is for educational purposes only and does not constitute legal advice. Every situation is different. Consult with a qualified attorney before making decisions about your EIDL loan or bankruptcy options.
Sources: The New York Times ("Covid Relief Loans Are Haunting Small Businesses," March 24, 2026); 21 Hats ("EIDL Loans Are Moving Quietly into Collections"); The Hill ("How a pandemic rescue became a 30-year debt trap," January 17, 2026); SBA Office of Inspector General Report 25-23; NFIB ("Navigating Economic Injury Disaster Loans and U.S. Treasury Collection Efforts"); Congressional Budget Office analysis of S. 68.