If you're behind on your SBA loan payments, you may have already received demand letters or collection calls.
But here's what many borrowers don't realize: once your file gets transferred to the U.S. Treasury, the rules of the game change completely--and not in your favor.
Understanding the SBA loan default timeline could save you thousands of dollars and protect your wages, tax refunds and even your Social Security benefits.
What Happens When You Default on an SBA Loan?
An SBA loan default doesn't happen overnight. When you first fall behind on payments, your loan is considered delinquent. The lender will typically reach out to see if you can catch up or work out a modified payment arrangement. This is the best time to act.
However, if payments remain unpaid for 90 to 120 days, the lender may officially declare your loan in default. At that point, the SBA steps in.
After the lender invokes the SBA guarantee and gets reimbursed, the SBA takes over your debt and begins its own collection efforts. You'll receive a 60-day demand letter outlining your balance and options--including the possibility of negotiating an Offer in Compromise to settle for less than you owe.
If you don't respond or can't reach an agreement, your file gets transferred to the U.S. Department of the Treasury. And that's when things get serious.
The Treasury Offset Program: Why it's Different
Once your SBA loan default reaches the Treasury, your debt enters the Treasury Offset Program (TOP)-- a centralized federal collection system with powers that ordinary creditors can only dream of.
Unlike a bank or collection agency, the Treasury doesn't need to sue you or get a court judgment. They can take aggressive action immediately, including:
Garnishing your Wages -- Up to 15% of your disposable income can be withheld directly from your paycheck through Administrative Wage Garnishment.
Seizing your Tax Refunds -- Your federal (and sometimes state) tax refunds can be intercepted before you ever see them.
Offsetting Social Security benefits -- Yes, the government can reduce your Social Security payments to collect what you owe.
Intercepting other Federal Payments -- Veterans benefits, federal retirement payments, and even contractor payments to your business are fair game.
Adding Massive Fees -- The Treasury tacks on collection fees that can increase your balance by up to 30%.
Perhaps most alarming: there is no statute of limitations on SBA loan debt.
Unlike private debts that can expire after several years, the Treasury can pursue collection indefinitely -- for the rest of your life if necessary.
Why 2026 is a Critical Year for SBA Borrowers
Millions of small business owners took out COVID-19 Economic Injury Disaster Loans (EIDLS) during the pandemic. Those payment deferral periods have ended, and the SBA has been aggressively referring delinquent loans to the Treasury since 2024. By 2026, this wave of referrals is expected to accelerate even further.
If you received an EIDL and you're struggling to make payments -- or you've already stopped paying -- your window to negotiate directly with the SBA is closing. Once your file moves to the Treasury, settlements become harder to secure and significantly more expensive.
Act Before Your File Transfers
Here's the bottom line: If you're facing SBA loan default, the time to act is NOW before your debt reaches the Treasury Offset Program. While your file is still with the SBA , you have options:
Offer in Compromise -- You may be able to settle your debt for less than you owe and this is one of our specialties at Tax Problem Solver. We've helped countless clients negotiate settlements with the SBA and Treasury, saving them thousands of dollars. The process is complex and the government doesn't make it easy, but with over 41 years of experience, we know exactly how to present your case to get the best possible outcome.
Hardship Accommodation Plan -- Eligible COVID EIDL borrowers can reduce payments by up to 50% for six months.
Loan Restructuring -- In some cases, the SBA may agree to modify your repayment terms, but be careful. Many borrowers accept these plans, only to find themselves drowning 90 days later because the payments are unsustainable.
Bankruptcy — As a last resort, SBA loans can be discharged through Chapter 7 or restructured through Chapter 13. Unlike student loans, government-backed SBA debt is dischargeable. However, bankruptcy won't remove liens on property you pledged as collateral, and it comes with serious long-term consequences for your credit.
What if Your SBA Loan Debt is Already with the Treasury?
Even if your file has already been transferred, settlement is still possible -- but it's harder and more expensive. Treasury typically seeks around 50% of the remaining balance, compared to much lower settlements that can often be negotiated while the debt is still with the SBA. You'll also be facing that additional 30% in collection fees.
At Tax Problem Solver, we've helped thousands of clients navigate government debt, including SBA loan defaults and Treasury collections, achieving favorable outcomes they could have never negotiated on their own.
Contact Tax Problem Solver today for a free consultation and let us make your tax problems disappear—so you don't have to face them alone.
You can contact me by one of the methods below in the blue box, or email me at Larry@TaxProblemSolver.com and we can review your specific issues and solve them. You can also click here to book a free consultation.
