Economic injury disaster loans (EIDLs) provided by the US federal government during the Covid-19 pandemic are experiencing a significant rise in defaults, now exceeding 30%. As of last June, $75.2bn in these loans have been charged off, according to a congressional report released earlier this year.
The federal government issued 3.9m Covid-related EIDLs, totalling $378.4bn, to businesses facing hardship due to the pandemic. The Small Business Administration (SBA) administered these loans, which offered low interest rates and deferment periods.
For borrowers with EIDLs exceeding $200,000, a personal guarantee was required, meaning the government could seize personal assets in the event of default. If payments are over 120 days past due, loans are transferred to the US Treasury Department for collection, incurring additional fees and penalties, typically around 30% of the principal. The IRS can garnish wages, tax refunds, or social security benefits for delinquent borrowers with personally guaranteed loans.
Jai Mazumdar, owner of Spice N Curry in Miami, took out a $370,000 EIDL in early 2021, followed by an additional $87,000 loan the next year. He is now struggling to make his monthly payments, stating his business is worse off than during Covid due to rising costs and declining sales. Randy Barnette, founder of Ornery Beer Company, is almost two years past due on a $500,000 EIDL taken in February 2021.