Strategy insights, policy analysis, and community discussion from SmallBiz Recon™

By E.T. Harold · SmallBiz Recon™

Former Supervisory Team Lead · 6+ years SBA experience

There is a growing issue that COVID EIDL borrowers need to understand clearly.

As of September 2025, SBA began referring delinquent COVID EIDL loans to the U.S. Department of the Treasury’s Bureau of the Fiscal Service Cross-Servicing Program. Treasury’s own public guidance confirms that once referred, these debts may be handled directly by Fiscal Service or by a Private Collection Agency (PCA), and defaulted loans can also remain subject to Treasury Offset Program collection activity.

Here is where things get serious.

Many borrowers are being told that there is absolutely nothing they can do to get their file back to SBA. That statement is, at best, incomplete.

Treasury’s current COVID EIDL contact page does say that “Treasury cannot return COVID EIDL or COVID PPP loan debts back to the Small Business Administration.”

But Treasury’s broader debt collection framework says something more nuanced:

The creditor agency has the duty and authority to recall a debt from Cross-Servicing in certain circumstances.

If a debt is not delinquent, the creditor agency is obligated to recall it.

Agencies must provide proper due process before referral, including demand letters and an opportunity to dispute or challenge the debt, and they must certify the debt is eligible and legally enforceable before sending it to Treasury.

Treasury’s own legal treatise states that an agency may recall a debt if the debt was improperly referred or if the agency’s certification may have been erroneous.

That matters.

Because if a file was sent to Treasury without proper due process, without valid pre-referral notice, without a real opportunity to dispute, or under some other defective certification, then the issue is not simply whether Treasury wants to send it back. The real question is whether the original creditor agency, SBA, had a legal obligation to have referred it in the first place. Treasury’s own rules say agencies must certify these prerequisites were met before referral.

There is also the money issue.

Treasury’s debt collection framework allows administrative costs and collection fees to be added to delinquent debts, including fees tied to Fiscal Service and private collection agencies. Treasury materials also confirm that when collections are made through Cross-Servicing or a PCA, payment can first be applied to the contingency fee before principal is reduced.

So when borrowers see major added balances, that is not random. It is tied to Treasury’s collection cost structure. Treasury’s glossary even defines contingency fees as money added to the debtor’s account to cover collection services.

The larger concern is this:

If borrowers are being told by collection representatives that no pathway exists, no review is possible, or SBA has zero authority once the file leaves, that is not a complete statement of the government’s own debt framework. Treasury does use PCAs, but the agency referral, due process certification, dispute rights, and creditor-agency recall obligations still matter.

Bottom line:

Borrowers should not assume that referral to Treasury automatically means every file was referred correctly, every fee is beyond challenge, or every path back to SBA is legally closed. If a referral was defective, if due process was not followed, or if the debt status was improperly certified, those facts matter.

That is why policy analysis matters. That is why documentation matters. And that is why borrowers need to stop accepting one-line answers from agencies and contractors who may not be analyzing the full legal posture of the file.

SmallBiz Recon™ continues to track this issue closely.

We focus on strategy, documentation, escalation pathways, and real-world analysis for borrowers trying to understand what is actually happening inside the COVID EIDL servicing and Treasury pipeline.

Have you or your client been told that a Treasury-referred EIDL file can never be reviewed, challenged, or recalled under any circumstances? Drop your experience below.

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