Note: This article is a transcript of the video below.
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Good morning, my name is Jason. I am the founder of Distressed Loan Advisors. I help people through difficult SBA loan situations, specifically EIDL loans, and I can also help with offer in compromise for 7A loans.
Today’s topic is my guess as to why the SBA might be resistant to settling EIDL loans at this point. So I want to give you some pretty ugly statistics when it comes to EIDL loans that might give us a little bit of insight into why the SBA is hesitant to negotiate settlements with borrowers. So this kind of blew my mind and I’ll put a link to the entire report because this comes from the Inspector General who oversees the SBA.
And so they had some things to say about the PPP program, but also the EIDL program. So get this. So the SBA was established in 1953.
And so for the 20 years between 1953 and through all the way through April of 2020, they approved a total of 2.2 million disaster loans, totaling $66.7 billion. $2.2 billion loans, $67 billion. Starting in March of 2020 when COVID hit through the end of the program in May of 2022, so just over two years, they approved 4 million, I think it was 3.8, but approximately 4 million loans totaling $387 billion.
So first 67 years, they gave out $66 billion. The next 24 months, so the next two years, they gave out $387 billion. So it’s roughly six times more than they had given in the 67 years before that.
That’s a lot of loans. And that on the face of it is not a problem. COVID was countrywide, whereas disaster loans historically were very precise.
So if there was a hurricane in Florida, they do it there. Wildfires in California, stuff like that. So it makes sense that since COVID was widespread, they were giving loans pretty much to everybody.
But that’s pretty mind-blowing to think that they basically give six times more dollars in a two-year period than they had in the previous 67. But this is where it starts to get really, really ugly for the SBA. The inspector general is estimating that of the $387 billion that they gave out, they have flagged $136 billion as potentially fraudulent.
And I did another video about specifics of what they think was fraud and how they identified it. I’ll put a link to that in the notes below. I’ll also put a link to the inspector general report, and I’ll also put a link if you want to schedule time with me.
So anyway, $136 billion that were flagged as potentially fraudulent, that represents a third, 33% of all the dispersed funds. So one of every $3 they flagged as potentially fraudulent. So in other words, the SBA decided to get the money out the door was the priority.
And as a result, the fraudsters came out in force. It really takes away your faith in humanity, right? All right. So potentially we’ve got all those fraudulent loans, but it continues to get worse.
So as of October of 2023, 20% of loans are past due. So that’s $77 billion, 20% of them past due, basically less than three years into a 30-year loan. In addition to that, another $47.7 billion have already been charged off.
So in other words, the SBA said, we’re not going to get this money back. So in total, that’s $124 billion out of a total of $387 billion. 32% of all SBA EIDL loans are either delinquent or have already been charged off.
And beyond that, it actually gets worse. That doesn’t even account for the fact that so many of them are on deferment. So it’s probably not a stretch to say if 32% of loans are either late or been charged off, there’s probably a good percentage that are on deferment, which means likely folks, more than 50% of EIDL loans are not paying according to the original loan terms.
50%. And just to give you a little contrast, for my banking days, once a year we would sit down and set aside reserves for loan losses. And the number that they would typically use, the amount of their portfolio they would set aside for loan losses, 1%.
Which means the SBA is probably looking at 50 times that. More than 50% of these loans likely will not repay. That’s unbelievable.
And so this leads me to my conclusion. Given the bloodbath that they are currently incurring, I cannot imagine that there is any sort of political will to do any level of forgiveness given the amount of sheer losses that the SBA is going to experience as a result of these SBA loans. And no one’s told me that, it’s just my guess.
But if you lend out $100 to your friends and half of your friends are like, I’m never paying you back. And then the other half said, hey, how about a discount, even though I probably can pay? You’re probably going to say no. Even if they can prove they can’t pay, you’re probably going to be like, look, I’ve already took in a bath on this.
I can’t give you any more help. Sorry. And I think that’s what may be happening.
Last point. I’m hearing tons of just horror stories about how bad customer service is. Some people are like, oh, I talked to somebody and they’re really great.
And then other people are like, yeah, they didn’t know what they were talking about. Here’s why. So before the pandemic, the SBA was servicing about 263,000 EIDL loans.
Now they’re servicing 3.7 million of them. So that’s 15 times. So what they do, they had to go on a hiring spree.
So they didn’t say how many employees they used to have, but now I’ve got close to 2000 employees. But the truth is a lot of them are inexperienced and poorly trained. And so they end up giving people incorrect information.
I’ve had people tell me that they incorrectly told people that they were personally liable. I’ve had them tell people incorrectly that you have to pay off your entire loan if want to sell collateral.
I’ve had people tell me that they got letters from the treasury and called and they said, nope, there’s no way you can bring this current. It’s got to stay at treasury.
Meanwhile, other people are saying, sure, go ahead and pay it. So the inconsistency can only be explained by this sort of ramp up in hiring that they had to do, because again, they’ve now got 15 times more loans than they previously had.
