Time is running out for small businesses and nonprofits that took out roughly one million government loans during the pandemic, the Wall Street Journal reported. The Small Business Administration this week began referring as much as $20 billion in delinquent COVID disaster loans with balances of $100,000 or less to the Treasury Department for collection. Another 10,000 delinquent COVID loans involving larger sums have already been sent to the Treasury. The referrals highlight the continued challenges for the COVID loan program, which provided financing to nearly four million small businesses and nonprofits. The SBA says it has charged off roughly 20% of its $390 billion COVID disaster loan portfolio, an accounting figure that includes Treasury referrals and other circumstances such as bankruptcy, fraud or the death of the borrower. Borrowers in default whose loans haven’t been sent to the Treasury Department can avoid the collection process by immediately requesting hardship assistance, according to the SBA. The SBA says the charge-off rate for the portfolio is in line with projections. Some of the troubled loans went to borrowers who never intended to repay the debts. More than $136 billion of COVID disaster loans, or about one-third of the total, showed signs of potential fraud, according to the SBA’s Office of Inspector General. The SBA says that it believes the amount of fraud is lower. Other borrowers were in weak financial condition at the time they sought financing, are still struggling to recover from the pandemic, or have closed their doors. Some borrowers and advisers say poor communication, repeated changes in government policies and limited options for relief have created additional challenges. (Subscription required.)
