SBA / EIDL Default Defense: Frequently Asked Questions

After 90 days of missed payments, the SBA classifies your EIDL loan as in default. The SBA may then refer the debt to the Treasury Department for collection through the Treasury Offset Program (TOP), which can intercept your federal tax refunds, Social Security benefits, and other federal payments.

Source: 31 CFR 285.5 (Treasury Offset Program)

Up to 15% of your disposable pay can be garnished through Administrative Wage Garnishment (AWG) for defaulted EIDL loans. You can request a hearing before garnishment begins, but that timing is not automatic. Whether the hearing happens before a garnishment order issues depends on your written request reaching the agency within the deadline stated in the notice. You can request a review based on financial hardship.

Source: 31 USC 3720D; 31 CFR 285.11

The Treasury Offset Program (TOP) allows the federal government to intercept federal payments owed to you, including tax refunds, to collect on defaulted EIDL debt. Before referral to TOP, the SBA is required to send a 60-day pre-referral notice giving you the opportunity to resolve the debt or dispute it.

Source: 31 CFR 285.5; 31 USC 3716

It depends on what the government is doing. Administrative offset, which is how Treasury intercepts tax refunds and other federal payments, is not subject to a time bar, so age alone does not stop an offset. A lawsuit to collect on the obligation is different. An action founded on a contract is generally subject to the six-year period in 28 USC 2415(a), running from when the right of action accrues. That is why a limitations argument can matter in a collection suit even though it does not stop an offset. When the period started running, and whether anything tolled or restarted it, are fact questions that depend on your file.

Source: 28 USC 2415(a); Debt Collection Improvement Act of 1996

Yes. The SBA and Treasury accept Offers in Compromise (OIC) where you propose to settle the debt for less than the full amount owed. Approval rates are low, and the SBA will evaluate your income, assets, and ability to pay.

Source: 31 CFR 902.2

Not as it was. The Hardship Accommodation Plan for COVID EIDL borrowers closed on March 19, 2025. What is described now is a reduced payment of 50 percent of the original payment amount for six months for borrowers who qualify, available once every five years rather than the renewable relief available earlier. Interest continues to accrue on the full outstanding balance while payments are reduced, so the shortfall accumulates and comes due later, and reduced payments still have to be made. Program terms have changed more than once. Confirm the current structure and your own eligibility against SBA's published guidance and the notices in your file.

Source: SBA EIDL Servicing Guidelines

The threshold is $200,000, with an exception for sole proprietors. COVID EIDL loans above $200,000 required a personal guarantee from any owner holding 20 percent or more. At or below that amount, no personal guarantee was required, so only the business entity is liable. A sole proprietorship is different, because it is not a separate legal entity, which means a sole proprietor can be personally liable without ever having signed a separate guaranty.

Source: SBA SOP 50 30 (EIDL Loan Program Requirements)

For EIDL loans over $25,000, SBA takes a security interest in business assets through a UCC lien. Personal real property is a different question and turns on whether there is personal liability at all. If you signed a personal guarantee, which was required above $200,000, or if you borrowed as a sole proprietor, SBA could potentially pursue personal assets, including real property. Your primary residence may have homestead protections under state law, and how much those protect varies considerably by state.

Source: NY CPLR 5206 (Homestead Exemption); SBA SOP 50 30

Act within 60 days. This notice means the SBA intends to refer your debt to the Treasury Department for offset. You have 60 days to request a review, enter a repayment agreement, pay the debt in full, or dispute the amount. Missing this deadline severely limits your options.

Source: 31 USC 3716(a)

EIDL loans are not forgivable. Unlike PPP loans, Congress did not create a forgiveness mechanism for EIDL. Your options for reducing the debt are limited to Offer in Compromise, negotiated settlements, or in some cases, discharge through bankruptcy.

Closing the business does not eliminate the debt. SBA continues collection against the business entity. If you signed a personal guarantee, which was required above $200,000, or if you borrowed as a sole proprietor, you remain personally liable regardless of what happens to the business.

Source: SBA SOP 50 30; 50 57

It depends on who owes it. A discharge releases an individual from personal liability, and a corporation, LLC, or partnership does not receive one in Chapter 7. What Chapter 7 does for a business entity is liquidate it, and the business closes permanently. That distinction is what matters to most people reading this, because the exposure usually runs through a personal guaranty: if you personally guaranteed the loan, your individual liability is what a discharge would address. Chapter 13 is available to individuals, including a sole proprietor, but not to a corporation or LLC, and Chapter 11 including Subchapter V is the reorganization path for a business that intends to keep operating. Secured collateral does not disappear in a discharge, since a lien can survive and whether that matters depends on what was pledged and what it is worth. Which chapter fits, and whether any of them should be used at all, turns on your entity structure, your assets, whether a guaranty exists, and what you want to happen to the business.

Yes. Federal law requires the SBA to send a written 60-day pre-referral notice before transferring your debt to the Treasury Offset Program. If you never received this notice, the referral may be procedurally void, which is a strong basis for challenging the offset.

Source: 31 USC 3716(a); 31 CFR 285.5(b)

3.75% is the fixed interest rate for COVID-era EIDL loans to businesses (2.75% for nonprofits). This rate does not increase upon default. However, the Treasury may add penalties and administrative fees once the debt is referred for collection.

Source: CARES Act; SBA EIDL Program Terms

Yes. Even after Treasury referral, you can make payments and attempt to negotiate a resolution. Contact both the SBA and the Bureau of Fiscal Service. In some cases, resumed consistent payments can support a request to recall the debt from TOP back to SBA servicing.

Usually, yes, though not at a fixed rate. The statutes authorize Treasury to charge a fee sufficient to cover the cost of collection, and Treasury sets the amount administratively rather than by a percentage fixed in law. It announces fee structures to creditor agencies, and the method and amount have changed over time. Agencies are generally required to pass administrative collection costs on to the debtor, though there is authority to waive them in whole or in part. SBA currently warns borrowers that a debt transferred to cross-servicing may result in added interest and collection fees of up to 28 percent. Treat that as a ceiling that combines interest with fees, not as a flat charge. What has actually been added to your balance appears on your notices, and that is the number to work from.

Source: 31 U.S.C. 3711(g); 31 U.S.C. 3717(e); 31 C.F.R. 285.12; 31 C.F.R. 901.9

Yes. A referral can be challenged, and a successful challenge generally returns the account to SBA servicing. Do not assume that also erases what has been added to the balance. Fees already charged are not automatically removed on recall, and whether any part of them comes off depends on the agency's authority to waive or compromise administrative costs rather than on the recall itself. Treat the challenge as being about the referral and the servicing relationship, and treat the balance as a separate question.

Source: 31 U.S.C. § 3711; 31 C.F.R. Parts 285 and 901; 13 C.F.R. Part 134; and SBA's SOP 50 57

A successful challenge to a cross-servicing referral generally returns the account to SBA servicing. What becomes available after that depends on the loan program, the loan's status, and current SBA policy, and it is not automatic. Collection fees added at Treasury are commonly addressed as part of a successful challenge, but that is a matter of what the agency does in a given case rather than a guaranteed outcome. Any relief program you are considering has to be checked against its current terms, which have changed more than once since 2020.

Source: 31 U.S.C. § 3711; 31 C.F.R. Parts 285 and 901; 13 C.F.R. Part 134; and SBA's SOP 50 57

Contact your U.S. Representative or Senator's office and ask for a congressional inquiry to the SBA. Provide your loan number, a brief summary of the issue, and supporting documentation. Congressional inquiries do not override SBA decisions, but they escalate your case to a dedicated contact within the agency.

Uncollectible status means the SBA has determined it cannot currently collect on your loan, typically because of hardship or inability to locate sufficient assets. The debt is not forgiven. The SBA can reactivate collection efforts at any time if your financial situation changes.

Yes. Through the Treasury Offset Program, the IRS can intercept your federal tax refund to apply toward your defaulted EIDL balance. State tax refunds may also be subject to offset depending on your state's participation in the program.

Source: 31 CFR 285.5

Act promptly. An AWG notice means the government intends to collect a debt it claims you personally owe by withholding part of your wages. Although the agency generally must provide at least 30 days advance notice, your written hearing request generally must be received by the designated agency or hearing official within 15 business days after the notice was mailed in order to preserve a hearing and a decision before a garnishment order is issued. If you missed that deadline, you may still request a hearing, but garnishment may proceed while the dispute is considered.

Source: 13 C.F.R. 140.11(e)-(f); 31 C.F.R. 285.11(e)-(f)