SBA EIDL loans likely defaulting

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While EIDL loans provided crucial support to struggling businesses, some borrowers faced challenges due to program limitations. The SBA’s recent adjustments aim to help borrowers avoid default and improve their long-term financial health

The SBA now finds itself in a spot it has never been before — as the main creditor to an ever-growing number of small businesses choosing bankruptcy.

The Playbook reviewed business-level bankruptcy data from nearly 21,000 businesses across the 45 markets served by The Business Journals network of publications, with more than 8,000 listing a major creditor in their bankruptcy — and the number of filings that list the SBA has skyrocketed.

In 2019, the SBA is named as the main creditor in just three bankruptcies, according to the data reviewed. By 2022, that had grown to 111; by 2023, it had more than doubled, to 253. That figure stands to be surpassed this year, as the SBA was listed as the main creditor in 72 bankruptcies through March 20 — less than one-quarter through the year.

While in absolute numbers the total number of bankruptcies is small, the volume has made the SBA the most-cited major creditor among the dataset compiled by The Business Journals. For context, in 2023, American Express Co. was the major creditor in 13 bankruptcies, and Bank of America Corp. was listed in 14.

Additionally, while the nature of the loans couldn’t be specified — in addition to EIDL and 7(a) offerings, pre-pandemic numbers in particular could involve SBA disaster loans or other loan programs — it’s clear the number of bankruptcies in which the SBA is the one holding the debt is on the rise.

That doesn’t mean the SBA will begin seizing assets and carting off restaurant or retail equipment. But it does mean, as the pandemic continues to recede from the everyday impact it had, a growing number of businesses that managed to stay afloat during Covid will go under and find there is much less leeway associated with holding an SBA loan than they might have thought.


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