Note: the article below is a lightly edited transcript of the video below.
Hey guys, my name is Jason. I’m the founder of Distressed Loan Advisors. If you wanna book time with me, click on this link.
Today, I wanna discuss some numbers that came across my desk, computer, whatever, about the EIDL loan program and the most recent charge-off number.
So just to refresh everyone’s memory, a charge-off is an accounting term and it’s essentially when a lender has reasonably concluded that a loan is uncollectible, they have to charge it off. And the reason they have to do that is because, and this gets a little technical, but basically a lender, when they have a loan on their books, that’s an asset. And so the interest that they collect is income.
And so essentially they are not allowed to count that loan as an asset anymore because chances are it’s not getting repaid. So when I say charge-off, that’s what I’m referring to. A charge-off does not mean that a lender won’t pursue a loan.
So just because it’s charged off doesn’t mean it goes away or you’re never gonna hear about it. It just means that from an accounting standpoint, they’ve deemed it to be uncollectible. Now, with that said, I just wanted to share some numbers that came out about the EIDL program.
And so just to recap, during COVID, there were 3.9 million EIDL loans to the tune of $378 billion, with a B, dollars. So in 2023, there was a huge amount of charge-offs. They charged off 51 billion right off the bat, almost 14% of the portfolio got charged off in 2023.
In 2024, they have charged off an additional $18.6 billion. So the grand total over four years is they have charged off almost $71 billion out of the 378 billion, which comes out to approximately 19% of all loans, which means that of every dollar that went out, essentially 19 cents is completely gone, and chances are they’re not gonna see it.
That’s pretty bad. And just to give you some context, the SBA 7A loan program charged off somewhere around 600 million last year. Not billion, million.
So the losses on this EIDL program are pretty staggering relative to any other loan type out there. And so what does that mean?
It means that chances are, I mean, by the time we’re all said and done here, the overall charge-off rate, the default rate, is gonna be much, much higher.
Because you have to consider, there’s a lot of loans that are in arrears that have not yet been charged off, and then you’ve got a lot of loans that are on deferment, right? The 10% for six months, another 10%, 50%, 75, yada, yada, yada.
So it’s conceivable that by the time we’re done, I mean, maybe it’s 40 or 50%, that would be pretty astounding if half of all these loans were charged off.
And so really, to me, it begs the question, if you’re not gonna start negotiating settlements of loans when the numbers are this bad, when are you gonna do it?
Because more and more time is gonna pass, you’re gonna be less likely to get people to be willing to settle. They’re gonna put it behind them, they’re gonna move on, or worse, they’re gonna file for bankruptcy, and then the opportunity to settle will be gone.
So I ask you, SBA, what’s it gonna take to get an offer and compromise program up and running on terms that work for everyone? I’ve said this before, I’ll say it again, this is not an issue of, “oh, the poor borrowers, we should do something to help them.”
This should be a business decision on the part of the SBA. The SBA should be looking at this and saying, “Clearly, a large portion of this portfolio is not gonna pay these loans back. What can we do to recover some money?” Sending things to the Treasury, as I’ve covered in other videos, the recovery there is very minimal.
So it makes a ton of sense to me. Settle these things for 10 cents on the dollar, 20 cents on the dollar. Whatever people can afford, you should be willing to consider.
You don’t have to give it away. Make reasonable business decisions. If you look at someone’s personal financial statement, it’s easy to tell, yeah, this guy can’t pay me back $2 million, I should take $200,000, because you know what, that net’s $200,000 more than you’re otherwise gonna get.
So that’s it. In summary, they’ve charged off about 19% of all of these loans to the tune of $71 billion gone down the drain.
So the next time you buy a ice cream for your kid and they immediately drop it and you’ve lost your $4, think of that and then compare that to what the government has done, which is essentially just, they might as well just put $71 billion in a paper shredder.
I say that facetiously, but you get my point. That’s it. Thanks for checking in.
I’ll see you on the next one.
