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When COVID-19 hardships struck in 2020, the Small Business Administration created a special loan to help. The COVID-19 Economic Injury Disaster Loan (EIDL) and EIDL Advance programs provided funding to help small businesses recover from the economic blow of the pandemic. The federal government also established the Paycheck Protection Program (PPP), a $953 billion business loan program.Unfortunately, these programs proved to be ripe for abuse. The SBA has identified potential fraudulent loans totaling over $4.6 billion. Some estimates put the amount of PPP and EIDL fraud at 10% of the total funds disbursed. As of March 2022, the Department of Justice reported it had charged over 1,000 individuals with criminal charges connected to alleged fraud of over $1 billion.In 2022, Congress passed bipartisan legislation to extend the statute of limitations for EIDL and PPP fraud cases from five years to ten years, to provide the federal government with additional time to investigate and prosecute cases of EIDL and PPP fraud and to ensure fraudsters were pursued.Is it possible that you have been victimized by this crime? In short, yes. Grant fraud, loan fraud, and phishing have spread far and wide.
What Is EIDL Fraud?
SBA EIDL fraud is when a borrower either lies about his or her income or knowingly provides false documentation to obtain an EIDL loan.It’s estimated that the SBA overpaid $4.5 billion in fraudulent EIDL claims through grants alone. Perhaps the worst part about EIDL fraud is that money was kept out of the hands of the people who may have needed it the most.
Common Frauds and Scams
EIDL fraud investigation often revolves around small business owners lying about their company’s yearly revenue or about how many employees they have. There’s even been outright lying about the existence of the small business at all.Though the SBA is no longer administering any grants, what is now known as EIDL advance fraud may in fact be one of the most abused aspects of EIDL. This is because small business owners who applied for an EIDL loan could request an advance in the form of a grant from the SBA that did not have to be repaid. With an EIDL grant, businesses could receive up to $1,000 per employee up to a total of $10,000.
How to Protect Yourself
While the SBA has stopped accepting applications for EIDL loans, some of those loans are now due for repayment. This presents more opportunities for fraud.The Inspector General has released tips for how to recognize criminals at work:
Scrutinize Emails
SBA only communicates from email addresses ending in @sba.gov. If you are being contacted by someone claiming to be from the SBA who is not using an official SBA email address, you should suspect fraud.
Refuse to Do Upfront Payment
If you are contacted by someone promising to get approval of an SBA loan, but requires any payment upfront or offers a high interest bridge loan in the interim, suspect fraud.
Double-check Numbers and Logos
If you are in the process of repaying your SBA loan and receive email correspondence asking for identity numbers, ensure that the referenced application number is consistent with the actual application number. Look out for phishing attacks/scams utilizing the SBA logo. These may be attempts to obtain your personally identifiable information (PII), to obtain personal banking access, or to install ransomware/malware on your computer
Notable EIDL Fraud Cases
Specific details of EIDL loan fraud cases are eye opening. What follows are some examples.
Conspiring to Get Loans
A Florida tax preparer was indicted in Pennsylvania for conspiring to obtain more than $7 million in EIDL loans, SBA loans, and Paycheck Protection Program (PPP) loans. Working with eight other individuals, he had the other people produce the necessary paperwork to make it seem as if they had functioning companies with active employees. He even took it a step further by creating “forgiveness plans” so it would appear that all of the money was being used for payroll expenses and thus meet the SBA’s requirements for PPP forgiveness.
Falsifying Information
A Pennsylvania man in Monroe County was charged with $450,000 in COVID-relief fraud. The defendant obtained two EIDL loans totaling $300,000 and tried to obtain a third loan in the amount of $150,000. He is accused of falsifying financial information for two small businesses and is charged with:
Five counts of wire fraud
Three counts of illegal monetary transactions
Financing Luxuries
A Long Island doctor pled guilty to using more than $3 million in illegally obtained EIDL and PPP funds to buy a yacht and other luxury items. He faces a large forfeiture, a $250,000 fine, and a maximum of 30 years in prison. Many of the funds he stole he claimed to have used for payroll purposes, such as the $1.75 million yacht, which he bought by making the check payable to a family member.
Using Identity Theft
Seven individuals in Los Angeles were arrested in a multi-million PPP and EIDL loan fraud scheme. The leader of the ring was sentenced to 17 years in prison. Using a combination of identity theft and falsification of documents, the ring leader and his entourage are alleged to have obtained more than $20 million in EIDL and PPP funds.
Tips if You Are Concerned About EIDL Fraud
As a Victim
Identity theft related to EIDL loans is very real. If you know or suspect that you are a victim of EIDL identity theft, the SBA asks that you download its COVID-19 Economic Injury Disaster Loan and Identity Theft Letter (PDF). From here, you will also be asked to submit the SBA’s Declaration of Identity Theft (PDF). Also consider putting a lock on your credit report. This prevents borrowers from being able to use your personal information to apply for credit.
As a Perpetrator
If you're afraid you may have committed EIDL fraud during an application, you may want to contact a lawyer as soon as possible. While it is up to the government to prove that you knowingly and willfully lied on your EIDL application, a lawyer may be able to help with your defense. If you’re concerned that you’ve misused funds, refer to the official uses of EIDL funds discussed above. The important thing is to keep track of how you’re using every dollar. Do this by:
Creating a bank account exclusively for all EIDL funds and accompanying transactions
Keeping detailed records of how you spend every dollar
Using all funds for only approved expenses
Can You Defer Paying Your EIDL Loan?
Yes, you can get a deferment from the SBA."Due to the continued adverse effects of the pandemic," the SBA says it provided a deferment period of 30 months from the date on the original Note for COVID-19 EIDL borrowers. This deferment does not apply to non-COVID disaster home and business loans. This deferment extension is effective for all COVID-19 EIDL loans approved in calendar years 2020, 2021, and 2022. Important: Interest will continue to accrue on the loans during deferment. More detailed information about eligibility and how deferment impacts your future loan payment amounts can be found in SBA procedural notice 5000-830558 dated March 15, 2022.
The Takeaway
At Lantern Credit, not only can you quickly and easily shop around for different types of small business loans, but it only takes one application to get offers from multiple lenders seeking to work with you. Check your small business loan rate.
Frequently Asked Questions
Can I still apply for an EIDL loan?
Where do I report EIDL fraud?
Can you go to jail for fraud connected to a SBA loan?
Photo credit: iStock/PeopleImages
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About the Author
Lauren Ward
Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
