Took a COVID EIDL Loan? The Collection Rules Changed This Year.

KEY TAKEAWAYS

• COVID EIDL loans are not forgivable, and the grace period is over. In April the SBA announced it had sent 562,000 delinquent PPP and COVID EIDL loans, worth $22.2 billion, to the Treasury Department for collection.
• Once a loan is at Treasury, the government can take tax refunds, part of a Social Security check, and up to 15% of wages, all without going to court.
• Your best options exist before the loan is 90 days past due. Check your loan now, even if you think autopay has it handled.

Nearly 4 million businesses took a COVID Economic Injury Disaster Loan in 2020 and 2021. The terms were easy to forget: 30 years at 3.75%, with the first payments deferred. Many owners have not looked at the loan since. This year, that became a risk.

What Changed in 2026

For several years the SBA kept delinquent COVID loans in house, where a borrower could still work something out. A temporary Treasury exemption that allowed that ran out on March 31, 2026. Weeks later the SBA announced the largest debt referral in its history.

Two things happen when a loan moves to Treasury:

• The balance grows. The SBA's own figure is added interest and collection fees of up to 28 percent. On a $100,000 balance, that can mean as much as $28,000 more.
• The SBA steps out. Treasury states that it cannot return COVID EIDL debts to the SBA, so the SBA's payment relief is no longer on the table.

What Treasury Can Do Without a Court Order

• Tax refunds. Treasury can intercept a federal tax refund and apply it to the loan.
• Social Security. It can take the lesser of 15% of the monthly benefit or the amount above $750.
• Wages. It can garnish up to 15% of disposable pay after 30 days' written notice. A hearing request made within 15 business days of that notice puts the garnishment on hold until a decision.
• Private collectors. Treasury also assigns these debts to outside collection agencies.

Your Exposure Depends on the Size of the Loan

• $25,000 or less: no collateral and no personal guarantee.
• Over $25,000: the SBA holds a lien on your business assets. Selling the business or its equipment without the SBA's written release can unravel the deal.
• Over $200,000: the owners generally signed a personal guarantee, and it survives closing the business.

Sole proprietors are personally on the hook at any loan size.

What This Means for You

• Log in to your SBA loan portal this week. Confirm that payments are posting. Frost Law reports borrowers whose autopay stopped in 2025 with no warning, and who learned of it only after the loan had gone to Treasury.
• If cash is tight, ask before you fall behind. The SBA will cut payments by 50% for six months, but only for loans less than 90 days past due. Interest keeps running, and the relief is available once every five years.
• Open every letter. The deadlines are short, and missing one can cost you the right to stop a garnishment before it starts.
• Already at Treasury and never warned? The law requires notice before a loan is referred. Frost Law reports that it has had loans pulled back to the SBA where that notice was never sent. It is a narrow exception, and it depends on acting quickly.

Timing alert: A federal tax refund is one of the payments Treasury can take. If you expect a refund in the spring, the time to check on your EIDL is now, not after you file.

Schedule a call with Strategic Tax Planning or call (202) 455-6010 today.