Small Businesses Face $59 Billion in Fees After Defaulting on COVID Recovery Loans

Small businesses that struggled during the COVID-19 pandemic are now facing a new challenge as thousands of them have defaulted on Small Business Administration (SBA) loans, totaling $59 billion in late fees. According to a recent report from the Wall Street Journal, 860,000 loans from the SBA’s COVID-19 disaster program are delinquent and have been sent to collections.

The SBA loaned out a total of $390 billion in recovery loans during the pandemic, providing a lifeline for many struggling businesses. However, the terms of these loans, including late fees, were not always clear to borrowers. Some businesses, like skincare company Ampac, are now facing hefty fees after defaulting on their loans.

Ampac borrowed $500,000 and paid back $425,000 before defaulting, but they still owe $262,000 in total. The company’s COO, David Bade, expressed concern over the 30 percent fee, stating, “I can’t charge that as a business. You would go to jail for usury.”

While some businesses may have missed payments accidentally, others are still struggling financially or have closed down entirely. The issue of transparency from lenders, especially those backed by federal disaster recovery programs, has been raised. It is crucial for entrepreneurs to fully understand the terms of any financing options before signing up to avoid facing hefty late fees.

With more transparency and understanding from both lenders and borrowers, the impact of these fees on businesses and the economy as a whole could be minimized. As small businesses continue to navigate the challenges brought on by the pandemic, clear communication and support from lenders will be essential in helping them recover and thrive.