SBA's largest-ever debt referral hands 500,000 pandemic borrowers a fee of up to 32 per cent

A fee of 28 to 32 per cent added to a balance carrying 3.75 per cent interest is about eight and a half years of interest at the original rate, charged once, and CPA Practice Advisor reports borrowers discovering it as a new line on a Treasury bill ^[5][9][1].

The dollar total is not disclosed beyond "tens of billions" ^[2]. Read that at its floor, $20bn across nearly 500,000 loans, and the mean referred balance is roughly $40,000 ^[1][4], which sits above the $25,000 line under which these loans were unsecured ^[10]. The fee on $40,000 is $11,200 to $12,800 ^[5]. On $20bn, the fee layer comes to $5.6bn to $6.4bn, all of it added by the referral itself ^[6].

Treasury can take a tax refund or Social Security benefits, garnish wages, and pass the account to private collection agencies ^[4]. A refund offset happens when the return is filed, the one time each year the owner sits down face to face with a tax preparer, and according to CPA Practice Advisor the EIDL delinquencies have drawn little of the coverage federal student loans got, so the questions land on tax professionals ^[11]. According to CPA Practice Advisor, some clients had forgotten the loan existed, and others did not know it required repayment ^[12].

Nearly 4 million businesses took COVID EIDL loans ^[8], so the referral covers about one borrower in eight ^[2]. The other 3.5 million are still with the SBA, where the hardship program and payment assistance can be applied for; both go away on transfer ^[3][7][13]. Once a loan is referred to Treasury, those options are no longer available ^[14].

Federal law requires agencies to refer delinquent debts to Treasury, so the referral itself was not discretionary ^[3]. The 60-day notice was required too, and CPA Practice Advisor reports that in many cases it never went out, and that in some instances the SBA did not follow its own internal protocols for telling borrowers the debt was moving ^[6][15].

The evidence does not pick between two readings of this. If the referred book is mostly small unsecured loans written to businesses that have since stopped filing returns, the 28 to 32 per cent inflates a nominal balance and collects very little. If it skews to the loans above $200,000, where a personal guarantee was required, the fee attaches to an individual with wages, a refund and eventually benefits, and it collects ^[10]. CPA Practice Advisor does not break the nearly 500,000 loans down by size ^[1].

For a borrower still current, the first item on the list CPA Practice Advisor gives tax professionals is to set up an account on the SBA Loan Portal and check the balance ^[13].