PPP Loan Not Forgiven and Now Due: 5 Options Before It Goes to Collections

As convenient as it was to get the money, you don’t want to be stuck owing the government back for a PPP loan that wasn’t forgiven. You’re looking at paying back whatever was left, plus one percent in interest. That’s due to be paid by the maturity date of the loan, which was set in your paperwork. Before it goes to collections, five options await you: you can appeal, answer the demand letter, pay by maturity, challenge a bad referral, or address the Treasury directly.

Unlike other debt scenarios, this is a loan the government will pursue aggressively. Agencies generally refer PPP debt unpaid for 60 to 180 days to Treasury. At that point, they’ll contact you to say they can offset any tax refunds you’re due or take funds from your Social Security benefits. And they’ll add in some fees on top of it, too. You can have your wages garnished up to fifteen percent of your disposable pay, and they don’t have to get a court order.

If you’re getting a repayment letter, welcome to the party. The flood gates burst open after the SBA and Justice Department announced a crackdown on pandemic fraud. The feds already suspended 870,000 borrowers. Many small businesses accepted these loans in good faith, under rules that kept changing.

Office of Hearings and Appeals

First and foremost, you can appeal. That’s only possible if the SBA sent you a final loan review decision in writing. It has to be the Small Business Administration’s own review decision; not the one from your lender. You’ll file with the Office of Hearings and Appeals within 30 calendar days after you, not the lender, receive it. You can extend your deferment if you file a timely appeal, but you’ll have to provide the lender with a copy of it. And there’s a catch: the petition won’t do you any good if it’s not based on “clear error of fact or law.” And remember, you’ve got to exhaust that administrative appeal before taking any legal action in the federal courts.

Even if your loan was forgiven years ago, it can still be reopened. The SBA’s review window is typically six years after forgiveness, if it’s over $150,000, three years otherwise. If they do reopen it, a reversal should come as a new final loan review decision, which you can appeal.

Demand Letter

Second is you can simply answer the demand letter, if that’s where you’re at. The Small Business Administration’s been sending repayment demands, requiring repayment within 30 days. It’s unclear whether those 30 days run from the notice’s date or the date you received it. But don’t ignore it, because otherwise it could be referred to the Justice Department or the Treasury for collection.

The letter should give a reason why, even if it’s vague about ‘irregularities.’ There’s not really any formal appeal. But, you can reply to the SBA’s email to discuss the matter. And you should act quickly. But first, find a business attorney that specializes in SBA matters and talk to them before you do anything.

If an SBA or Treasury letter hints at fraud, that’s more serious. A False Claims Act case generally needs a knowingly false statement. Honest mistakes and mere negligence aren’t enough. But confusing rules and lender advice matter here.

Repay It Yourself by the Maturity Date

Your third option is to repay it yourself by the maturity date. There’s a fixed interest rate of one percent. Loans made after June 5, 2020 ran for at least five years, and earlier ones for two years, although they could’ve been extended if the lender agreed. Note that in either case, the accrued interest due on the unforgiven part is also due.

Your fourth option is challenging a bad referral. Before sending a debt to Treasury, it generally must be past due and legally enforceable. The SBA is supposed to give you notice, plus a chance to dispute it or set up repayment. If they skipped that, you might have some grounds. The government may cut corners, sometimes sending debts without giving a due process letter. The first sign of trouble could be a private debt collector, which adds a 30 percent fee. SBA lawyers might undo that if it was improperly referred, though rising volume could slow that process.

The fifth option is to work it out once it’s at Treasury. Call the Cross-Servicing toll-free line at 888-826-3127. They can help you set up an installment agreement. They may ask for a financial statement and recent tax returns, and remember to ask if offset collections keep going while you’re working through this. If paying it all back simply isn’t possible, you may be able to compromise the amount through Treasury. One thing to watch out for is that the part they forgive could be reported on a 1099-C and be taxed as income.

Whatever your approach, taking action sooner is better. Your plan should include building your own loan file. That includes application forms, bank statements, payroll and other records, tax returns, forgiveness application, and lender emails. On top of that, make sure to keep your email and mailing address current. Otherwise, a new decision or the 30-day demand might not get to you.