Borrowers in a bind over defaulted COVID-19 loan

When the pandemic hit, Cut Seven gym owners Chris and Alex Perrin did what it took for their business to survive. Unable to hold workouts inside, they held workouts on fields until they converted a rundown body shop into an open-air gym. To keep their employees, they wiped out Chris’s 401(k) savings.

And like millions of Americans, they turned to the federal government for help.

In 2020, the Perrins took out a $24,000 COVID-19 "economic injury disaster loan,” commonly called “EIDL,” from the U.S. Small Business Administration (SBA) to help keep their business afloat.

Their hard work paid off. While so many companies around the world closed during the pandemic, their business thrived.

“We more than doubled during COVID,” Alex said.

And they wanted to double their reach, so in 2022, the entrepreneurs said they took out a $575,000 loan to build a new and larger gym in Arlington, Virginia. During construction last year, however, they realized they needed even more money. Their lender advised taking out a new loan, and during the closing, the Perrins said they received a shock.

“They said, 'You have an EIDL loan, and it's coming up in default,” Alex recalled, adding, “We were shocked.”

The Perrins had made a few payments on their SBA loan in early 2023 but said they didn't realize they had subsequently fallen behind, telling News4 they thought they had set up auto-payments. The SBA then “charged off” their loan in June 2023, which, according to the agency’s website, means the balance of the loan was removed from the agency's accounting records, though the debt is still owed.

As a result, the Perrins’ bank couldn’t move forward with their loan until the problem was solved.

 “We were not just trying to deal with the SBA. We were trying to deal with our landlords, our bills, everything,” Chris recalled.

The Perrins made payments to bring their loan current but said trying to get the SBA to move them out of default status took several phone calls and emails -- and time.  

“If there is an SBA number, we have called it every day. We emailed every day,” Chris said. 

Alex said a customer service representative explained, “There are thousands and thousands of people having the same issue, and you just have to wait your turn.”

The Perrins are far from the only borrowers in default. According to the SBA's Office of Inspector General, roughly 1.3 million loans under $100,000 like theirs were past due, delinquent or in liquidation as of last May.

Trevor Curran and Linda Rey run a business and YouTube channel advising people how to navigate these SBA loans. They said that, unlike the Paycheck Protection Program loans, which have largely been forgiven, defaulting on EIDLs can cause big problems.

“If you want to get more money, grants or loans – not happening,” Curran said.

They said it takes time to get the problem fixed, even if the borrower pays up.

“You can bring the payments current, but you then have to send an email to SBA to say, ‘Please, update my status,’ and then wait for them to update the status in the system,” Curran continued.

It’s not uncommon to wait several weeks or longer for relief, they said, explaining they submitted a similar request for one of their clients six weeks ago and are still waiting for the process to be completed.

The SBA said that while verifying a borrower's payments can take up to a few months, they do have an expedited process for people waiting on outside financing that can take as little as a few days. They recommend having one’s lender make that request so the SBA understands it’s legitimate.

The Perrins, however, said they weren’t informed about the expedited process.

In the end, it took about five weeks for the SBA to move them out of default, and their loan quickly went through. The Perrins opened their new Arlington gym this month.

“I’m shaking because I didn’t think it was going to happen,” Chris said.

They said while they're grateful to the SBA for programs that help businesses like theirs, this was a growing pain they hope to never feel again.

This story was reported by Susan Hogan, produced by Katie Leslie and edited by Jeff Piper.

Tips for getting COVID-19 loans back on track

1. Make a payment. Even if you can't pay all that you owe, pay whatever you can. If your loan is in jeopardy of assignment for collection to the U.S. Treasury, make a lump sum payment to bring the entire loan current.
2. Don't ignore the SBA's attempts to reach you and collect the debt, and make sure your contact information is current in their system.
3. Reach out by phone (833-853-5638) and email to discuss your situation. Plus, send follow up emails for every phone conversation to cesc@sba.gov and put your SBA disaster loan number in the subject line.
4. Read your EIDL loan authorization and agreement (LAA) to understand all of your responsibilities.

Source: EIDL Experts Trevor Curran and Linda Rey and others