The federal government handed out $378.4 billion in pandemic disaster loans to keep small businesses alive. For hundreds of thousands of those businesses, the loan is now the thing threatening to kill them.

Jai Mazumdar has run Spice N Curry, a vegetarian Indian cafe and grocery near Florida International University in Miami, for nearly two decades. In early 2021, with his business gutted by the pandemic, he took out $370,000 from the federal government's economic injury disaster loan program, then borrowed another $87,000 the following year. The terms looked manageable: a 3.75% interest rate, a 30-year repayment window, and a deferment period of two and a half years to let businesses get back on their feet.

His business never got back on its feet.

The university crowd that kept his lunch trade alive had scattered to remote work and remote learning. By the time he reopened the dining room in 2022, sales were so weak that he shut it down permanently after eighteen months. He now runs a stripped-back grocery operation, working seven days a week, twelve hours a day. His monthly loan payment is $1,900. His mortgage is $1,600. He rents out a room in his own home to cover the gap.

"It's become a completely hand-to-mouth existence," he said.

The numbers behind the individual story are staggering

The federal Small Business Administration issued 3.9 million of these loans to businesses across the country, in amounts up to $2 million per applicant. According to a congressional report released earlier this year, more than 30% of those loans are now in default, with $75.2 billion in loans charged off as of last June. A charge-off means the government has written the debt down as unlikely to be recovered, but it does not mean the borrower is off the hook.

For borrowers like Mazumdar who took out more than $200,000, the terms included a personal guarantee. That means if he defaults, the government can pursue his personal assets, not just his business. His home, his savings, his financial life outside the restaurant are all on the table.

Erika Polmar, executive director of the Independent Restaurant Coalition, a nonprofit that advocates for independent bars and restaurants, put it plainly: "Covid was an extinction event for tens of thousands of restaurants. The ones that survived, if they didn't receive restaurant revitalization fund grants, had to pay off all that debt from small business loans or EIDLs... So they moved through 2022 and beyond trying to pay off their debt and weren't able to reinvest in their businesses."

That inability to reinvest is its own kind of slow collapse. A restaurant that spends its cash flow servicing pandemic debt cannot fix the walk-in cooler, cannot give raises, cannot weather the cost spikes that have hit food, labor, and energy since 2022. Mazumdar used his initial loan money to refurbish his space and upgrade refrigeration equipment, and then spent the rest on operating costs just to survive. Five years later, he says the money is gone and the business has lost money every single year since Covid hit.

The structural problem

The disaster loan program was designed for one-time shocks: floods, hurricanes, localized catastrophes that damage a business and then pass. A restaurant destroyed by a hurricane can rebuild and return to its customer base. A restaurant that lost its customer base to a years-long shift in how people work and eat is facing something different. The loan assumed recovery would come. For a wide slice of the food industry, it didn't.

What's left is a generation of small business owners legally bound to repay money borrowed during a crisis into conditions that are, by some measures, harder than the crisis itself. Rising rents, compressed consumer spending, labor shortages, and, for Mazumdar, declining tourism in Miami have piled on top of the debt load. "There is a tsunami going on right now," he said. "Everyone is just nervous about when the next leg of the stool is going to collapse."

The $75 billion already written off by the government represents real money that will not come back. The businesses still current on their payments, grinding through seven-day weeks to stay that way, represent a different kind of cost that doesn't show up in a congressional report.