Thousands of businesses who accepted Small Business Administration (SBA) loans during the COVID-19 pandemic have now defaulted and owe a total of $59 billion in late fees, according to Small Biz Trends.
A recent report from the Wall Street Journal revealed that of the $390 billion in recovery loans given by SBA from the COVID-19 disaster program, 860,000 of those loans are now delinquent and in collections.
The reasons for these businesses defaulting can range from missed payments, to financial struggles, or their business going under–but some have argued the terms of payments were not initially made clear to them.
When the federal debt collection program was first approved by Congress, rather than funding the program, the Treasury Department was directed to charge borrowers late fees. SBA has stated that borrowers in default typically cover these collection fees. But some of those who signed up for these relief loans claim that they weren’t made aware of how these fees work.
Ampac, a skincare company, took out a loan of $500,000. Before the company defaulted, they paid off $425,000 of the loan. With the loan now in collections, Ampac still owes $262,000.
“I can’t charge that as a business,” described COO David Bade of the 30% fee to the Wall Street Journal. “You would go to jail for usury.”
