A Treasury collection letter involving a pandemic-era business loan deserves prompt, careful review. It can raise questions about the balance, loan forgiveness, the borrower’s original application, and how the funds were used.
In April 2026, the U.S. Small Business Administration announced that it had referred 562,000 borrowers associated with $22.2 billion in delinquent Paycheck Protection Program and COVID Economic Injury Disaster Loan debt to the Treasury Department for collection. The loans had previously been flagged for suspected fraud. The SBA also reported transmitting information concerning those borrowers to the Department of Justice.
For Bergen County business owners, the key is to take any contact seriously without assuming that a fraud flag proves wrongdoing.
A Fraud Flag Is Not a Fraud Conviction
A loan can be flagged when government data analysis or manual review identifies possible problems involving borrower identity, eligibility, application information, loan amounts, or the use of proceeds. A flag can prompt collection or further investigation, but it is not a judicial finding that the borrower committed fraud.
Some discrepancies have legitimate explanations. A company may have changed addresses, used a payroll processor, operated through related entities, or relied on an accountant or loan preparer. Other cases involve identity theft or loans obtained without the business owner’s knowledge.
Any explanation should be supported by records. A hurried phone call or unsupported denial is unlikely to resolve a significant discrepancy.
What Happens After a Treasury Referral?
Treasury’s Bureau of the Fiscal Service collects delinquent federal debts through its Cross-Servicing program. Available collection methods include demand letters, telephone calls, payment agreements, credit reporting, private collection agencies, federal payment offsets, and referrals to the Department of Justice for litigation. Interest, penalties, and collection costs can also increase the balance.
Once a COVID EIDL has been transferred to Treasury Cross-Servicing, SBA generally no longer services the debt. The borrower must usually communicate with Treasury about collection and payment issues, although Treasury may refer a dispute about the existence or amount of the debt back to SBA for review.
Business owners should verify that the communication is genuine before providing financial information. Check the creditor agency, amount claimed, Treasury case or account number, and instructions for responding. Confirm the contact information through an official government website rather than relying solely on a telephone number or link in an unexpected email.
Review the Loan File Before Responding
A business contacted about a PPP or EIDL obligation should gather:
- The original loan application and all amendments
- Payroll records and tax filings
- Bank statements showing how proceeds were received and spent
- PPP forgiveness applications and decisions
- EIDL payment histories and prior servicing correspondence
- Communications with lenders, accountants, and loan preparers
- Corporate formation, ownership, and identity records
These documents can reveal whether Treasury’s balance is accurate, whether payments or forgiveness were properly credited, and what may have caused the fraud indicator.
Business owners should also avoid altering, deleting, or recreating records. If a notice refers to suspected fraud or a possible DOJ investigation, legal advice is especially important before submitting a detailed written statement.
The Debt Can Be Disputed
Treasury allows borrowers to request documentation supporting a debt and dispute whether the debt exists or the amount is correct. A dispute should identify the specific error and include supporting records. Treasury then asks the referring agency to review the issue.
What If the Business Cannot Pay in Full?
Businesses unable to pay the full balance can ask about an installment agreement or possible compromise. Approval depends on the borrower’s financial circumstances and other applicable requirements. Treasury may request financial statements, tax returns, and documentation of expenses before considering either option.
Ignoring the notice can make the situation more difficult. Collection may continue while the balance grows, and a missed deadline can narrow the business’s practical choices.
Get Help Responding to a Treasury Notice
ClearPath Law assists New Jersey businesses with SBA loan defaults, debt resolution, and financial restructuring. Attorney David Stevens can review the notice and underlying loan records, identify potential disputes, and help the business evaluate its response. Contact ClearPath Law to arrange a confidential conversation.
