The EIDL Reckoning
Defaults, Deadlines, and What’s Next
During the pandemic, many small businesses turned to Economic Injury Disaster Loans (EIDL) to stay afloat. While the program was a lifeline for those in need, it also became notorious for fraud and abuse. Throughout this time, many of us urged our clients to borrow conservatively, keep detailed records of how funds were spent, consider their ability to repay, and be mindful of personal guarantees. Still, not everyone heeded that advice.
Defaults on the Rise
Over the past several months, we've seen a surge in EIDL defaults—and the trend is expected to continue. According to the SBA, 1.3 million EIDL loans are in default, liquidation, or charged off. That’s out of more than 4.1 million loans totaling approximately $400 billion disbursed during the pandemic.
To help borrowers, the SBA introduced the Hardship Accommodation Plan (HAP). This allowed for graduated loan payments, enabling borrowers to pay:
10% of their monthly payment for 6 months,
then 50% for another 6 months,
then 75% for 6 months,
before returning to full payments.
For loans under $200,000, borrowers could apply online. For loans over $200,000, applicants submitted a brief form and an updated profit and loss statement. We had many clients take advantage of this plan.
Sudden Policy Shift
However, on March 19, 2025, the SBA abruptly ended the hardship program—without prior notice. This move came amidst sweeping changes across federal agencies under the new administration, including layoffs within the SBA itself.
Borrowers awaiting approval were met with a dead-end. The SBA website offered no meaningful explanation, leaving many scrambling.
Limited Relief Still Available
About an hour ago, a client recently forwarded an email from the SBA stating that while HAP is no longer available, a new short-term payment assistance option exists for certain borrowers.
Eligibility criteria include:
Never having enrolled in HAP,
Being less than 120 days past due,
Not being in charged-off status,
Providing a written explanation of a temporary financial hardship.
If approved, borrowers may receive a 50% payment reduction for 6 months. This is a one-time opportunity, and the explanation must demonstrate why the hardship is temporary—not ongoing. For this, you must contact the SBA COVID EIDL Customer Service Center by email at CovidEIDLServicing@sba.gov or by phone at 1-833-853-5638.
What's Next for Borrowers?
This change leaves many small business owners anxious and unsure of their options. Some loans are already in collections with the Treasury Department through the Treasury Offset Program (TOP). Others remain in limbo—seriously past due but not yet charged off.
In most cases, loans under $200,000 did not require a personal guarantee. As such, borrowers may not be personally liable, provided they didn’t misuse the funds. These loans were strictly intended for working capital—not business expansion or inflated owner compensation.
Will EIDL Loans Ever Be Forgiven?
Many borrowers continue to hope for forgiveness. Personally, I think that’s unlikely—but in today’s political climate, anything is possible. That said, ignoring the issue is the worst approach.
What Advisors Can Do
As tax professionals, the best thing we can do is what we’ve always done:
Keep our clients’ books in order—either directly or by referring them to a qualified bookkeeper,
Review their financials,
Keep them current on tax filings and obligations,
And when necessary, refer them to qualified attorneys familiar with SBA matters.
Some clients will never be able to repay their EIDL loans. Their options may include:
Defaulting,
Filing bankruptcy,
Or negotiating a settlement through the SBA’s Offer in Compromise program.
If a client used loan funds in violation of the loan agreement, legal counsel is essential. That’s where our guidance and referrals become even more critical.