Small Businesses Owe $59 Billion From COVID Disaster Loans

The Small Business Administration (SBA) loaned out $390 billion to keep companies afloat during COVID.

Now, many of those small businesses say they are struggling to pay back fees after defaulting on those loans, The Wall Street Journal (WSJ) reported Thursday (May 2).

According to that report, the SBA has handed off 860,000 delinquent loans from the COVID disaster program — adding up to more than $59 billion — to the Treasury Department for collection. But some borrowers say their businesses are still in trouble, or have shut down. Others missed payments by mistake, or never intended to pay back the loan.

Among the companies that defaulted was Ampac, a California-based skincare products seller. It made $425,000 in payments on its initial $500,000 loan, only to learn it still owes in the neighborhood of $262,000.

That’s because after the default, the loan was sent to collections, and Ampac was assessed a 30% fee that David Bade, the firm’s chief operating officer, said was not spelled out in the loan documents.

“I can’t charge that as a business,” Bade told the WSJ. “You would go to jail for usury.”

A Treasury spokesperson told the news outlet Congress approved the federal debt-collection program but — in lieu of funding it — authorized the Treasury to charge fees, which the department says are in line with those administered by debt collection agencies.

And the SBA says it is standard practice for agencies to pass along the Treasury collection fee to borrowers, the report notes.

This is happening at a time when small and medium-sized businesses (SMBs) are facing other pressures, as PYMNTS wrote earlier this week.

To be clear, many SMBs are doing quite well, according to recent PYMNTS Intelligence research, which shows that business growth and wages for more than half of these companies are outpacing last quarter’s national GDP rate of 5.7%.

“However, not everything is entirely rosy on Main Street,” the report said. “While consumers appear to be more comfortable dining out, traveling and staying at hotels in post-pandemic America, work-related businesses on Main Street appear to be facing a more challenging time.”

The research shows that Main Street SMBs in the professional services sector were the least likely to enjoy growing revenues, at 30%, which could suggest that automation and changing work-related norms affect these SMBs.