Uncle Sam is turning the screws on small businesses that took advantage of generous stimulus programs during Covid.

Last Thursday, the Biden Administration announced it would go after business with overdue pandemic loans, seeking to collect over $30 billion in delinquent debt.

The policy change comes after Biden’s harshest critics warned that his administration risked breaking the law if it didn’t at least try to get the money back.

During the height of Covid, the U.S. government provided businesses with more than $1 trillion in emergency funding. The loans were meant to help cash-strapped businesses stay alive during lockdowns.

But as it turns out, some business owners apparently didn’t read the fine print.

Federal business loans were funded through two separate programs: the Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP).

Of the two, only PPP loans are eligible for loan forgiveness. Those who borrowed under EIDL were expected to pay their loans back in full.

But even then, the government was lenient, and many EIDL loans of $100,000 or less didn’t enter into collections. Those loan amounts represented small fish, and the government didn’t have the resources to go after them, officials told The Washington Post.

When the Small Business Administration (SBA) crunched the numbers, it found that there were roughly $30 billion worth of PPP and EIDL loans that should enter collections.

At the very least, Uncle Sam needs to try to get the money back, SBA said.

“The SBA’s long-standing policy is to use all cost-effective methods to collect on all pandemic-era loans as required by law,” the agency said.

“[W]e will refer PPP and Covid EIDL loans less than $100,000 to Treasury in accordance with a recent, updated analysis demonstrating that this final collection step will be cost-effective for the government,” it added.

Until March, delinquent borrowers will have a 60-day grace period to start paying back their loans. If they fail to do so, the Treasury Department will come after them with harsher sanctions.

The timing couldn't be worse.

Strong economic growth masks small business weakness

Although the U.S. economy has posted several consecutive quarters of stronger-than-expected growth, small businesses aren’t benefiting equally.

For one, rising interest rates and volatility in the banking sector have made it harder for these businesses to get financing. According to FDIC data, small business lending has barely grown since pre-pandemic times.

At the end of 2019, banks held $645 billion in commercial loans of less than $1 million in size. Fast forward to mid-2023, that figure had only grown by around $11 billion.

Research from Goldman Sachs also revealed that three-quarters of small business owners fear they won’t have access to the capital they need to grow their operations.

“Just a year ago, 77% of respondents said they were confident about their access capital. Now the tables have turned, with the same percentage citing concern,” the investment bank said in a report last year.

“They want to borrow [...] they want to expand, but they need to find the people to be able to do it. That’s a real challenge,” said Chase for Business CEO Ben Walter.

Walter also noted that inflation is a major sore spot for small business owners—a concern echoed in Chase’s midyear business leaders outlook.

According to Chase, nearly four out of five small business owners have seen their expenses increase by at least 6%. They’ve resorted to price hikes and cost-cutting to stay afloat.

It’s no wonder why business confidence has declined over the past year.

Business optimism declines

The NFIB Small Business Optimism Index declined by two points in January to 89.9—the 25th consecutive month the reading was below the 50-year average of 98.

“Small business owners continue to make appropriate business adjustments in response to the ongoing economic challenges they’re facing,” said NFIB chief economist Bill Dunkelberg, adding that “inflation remains a key obstacle on Main Street.”

Declining confidence among small business owners is a potential warning sign for the U.S. economy.

Despite mega-corporations dominating the headlines, small businesses account for a whopping 99.9% of U.S. enterprises, according to the Chamber of Commerce. Collectively, they employ 46% of the workforce.

Yet, many of these economic powerhouses are struggling to keep the lights on.

A 2023 report from the business networking platform Alignable found that close to 40% of small business owners are having trouble making their payments on time.