The EIDL Crisis Is Real. And Almost No One Is Talking About It.

Right now, hundreds of thousands of small business owners across the United States are receiving collection letters from federal agencies and private debt collectors. Many of them have no idea why the amount they owe is so much higher than they expected. Some assumed their loan was forgivable. Some simply did not understand that interest had been accruing for years.

This is the EIDL collections crisis.

The COVID-19 Economic Injury Disaster Loan (EIDL) program provided critical relief to small businesses during the pandemic. Over 3.9 million loans were approved. According to an SBA Office of Inspector General report, as of December 2024, the SBA had charged off more than 369,000 COVID-19 EIDLs totaling more than $47 billion. An additional 96,745 loans totaling $14.7 billion were delinquent by 90 days or more and in active collections. The SBA is projecting a 37% default rate for the EIDL program overall.

Roughly one in three EIDL loans is either in collections or at risk of entering collections.

Many small business owners confused EIDL loans with PPP loans. PPP loans were designed to be forgivable. EIDL loans are not. They are 30-year government loans at a 3.75% interest rate that must be repaid in full.

Interest never stopped accruing, even during the 30-month deferment period. When a loan transfers to the Treasury Department’s Cross-Servicing program, a mandatory 30% penalty is added. A borrower with $25,000 in principal can receive a demand letter for $32,500 or more, before accrued interest. For many borrowers, that number came as a shock, arriving before they had a chance to understand their options or seek guidance.

For small business owners who default, the consequences can include:

• Significant damage to personal and business credit scores

• Automatic seizure of federal tax refunds

• Offset of Social Security or other government benefit payments

• Wage garnishment for W-2 employees of up to 15% of disposable income

• Permanent disqualification from future federal aid, loans, or assistance programs

Two things could make a meaningful difference for borrowers still navigating this:

Borrowers need plain-language guidance about their rights, available options, and the true cost of entering federal collections. Understanding what a 30% penalty means, and knowing what steps to take before a situation escalates, can change outcomes significantly.

Connecting delinquent borrowers with resources and advisors before their situations deteriorate is where the most good can be done. Small business support organizations, CDFIs, and community lenders all have a role to play here.

TAP is already working directly with small business owners navigating this crisis. When a business owner receives a collection notice, the most important thing they can do is slow down, gather documentation, and find a trusted advisor.

TAP advisors help clients identify the documentation they need, understand how to request debt validation in writing, dispute unclear charges, and recognize when it is time to seek guidance from an attorney or tax professional with SBA debt experience. Research highlighted by the SBA shows that 70% of small businesses that received mentoring survived more than five years, double the rate of those without mentoring.

If you are a small business owner navigating an EIDL collection notice, TAP is here at no cost, nationwide. You do not have to figure this out alone. Read Our Full EIDL Guide.