SBA writes off $18.6 billion in Covid-era loans amid oversight challenges

The Washington Business Journal is reporting SBA charged off $18.6 billion in Covid Economic Injury Disaster Loans (EIDL) in fiscal 2024, representing 6.5 percent of the active $287 billion portfolio. This charge-off rate is notably higher than traditional SBA disaster loans, which typically range between 1.5 and 3.5 percent. Despite a decline from the $52 billion charged off in fiscal 2023, the program remains under scrutiny for its oversight mechanisms.

The SBA’s Hardship Accommodation Program (HAP), which allows struggling businesses to make reduced payments over six-month periods, has expanded in eligibility and flexibility. While it aims to prevent defaults, experts warn that accrued interest under HAP could exacerbate borrower debt and lead to delayed defaults.

Two recent audits have highlighted deficiencies in SBA’s monitoring systems for Covid EIDL loans. SBA’s Inspector General and KPMG identified “material weaknesses” in financial reporting and monitoring controls, including gaps in tracking loan eligibility under HAP. While SBA acknowledged these issues, it cited progress in strengthening internal controls, hiring a chief risk officer, and establishing an Office of Enterprise Integrity.