Covid EIDLs With Real Estate as Collateral Have Much Lower Default Rate

369,588 Covid-era EIDL loans valued at $47 billion had been charged off by December 2024, according to a recent report issued by the Office of Inspector General (OIG).

It turns out that collateralizing real estate may have made all the difference in the outcome. For loans over $25,000, for example, the SBA relied on simple blanket liens as collateral. This allowed the agency the right to take possession of the borrower’s assets upon default, such as inventory, equipment, and any other tangible or intangible property owned by a business. If that was supposed to be a deterrent to default, it hasn’t shown considering the raw number of defaults so far.

On loans over $500,000, however, business borrowers were supposedly required to put up real estate as collateral but according to the OIG, they approved the loans regardless. Consequently, of the 58,024 COVID-19 EIDLs exceeding $500,000, only 4,718 were secured with real estate. Only five of those real-estate-backed loans had defaulted as of July 2024. Compare that with the 4,605 loans over $500,000 without real estate as collateral that have already defaulted and been charged off. The difference is clear.

As of July 2024, none of the five defaults with real estate had been foreclosed on yet.

Full OIG Report here.