The U.S. Small Business Administration is pledging to improve the loan review process for Paycheck Protection Program loans, even as it pursues a record number of fraud complaints.
The SBA said Tuesday it is taking steps to smooth the path for reviews of so-called “first draw” loans so small businesses get as much time as possible to access sorely needed PPP funds. The first draw loans are for businesses that didn’t receive PPP loans last year during the initial two rounds of funding before the program expired last summer. The SBA is also aiming to improve the process for “second draw” loans for businesses that are applying for a second PPP loan this year.
Last December, Congress renewed the business-lending program with an additional $284 billion in funding. The PPP has helped many businesses survive the economic fallout of the COVID-19 pandemic since it was first included in the CARES Act last March. In many cases, accountants were able to help their small business clients procure the loans and apply for forgiveness of the debt.
However, the program has also posed obstacles to many businesses who had difficulty accessing the loans and navigating the ever-changing rules and procedures, especially during the initial round when funding quickly ran out and had to be renewed by Congress. Minority-owned businesses in particular faced difficulty in getting the loans.
“Prior to this newest PPP round, the SBA supported 5.2 million PPP loan borrowers, providing more than $525 billion in economic relief to small businesses and other eligible entities,” said SBA acting administrator Tami Perriello in a statement. “The agency is committed to making sure compliance checks are executed on the front-end. The SBA is also committed to addressing issues more efficiently moving forward, to ensure fair and equitable access to small businesses in every community.”
The program was aimed at small businesses by providing them with loans that could be forgiven if they retained their employees for up to eight weeks, but many large companies and organizations ended up claiming much of the money initially. And while many legitimate small businesses faced difficulties in getting the loans, fraudsters were able to set up bogus companies with little paperwork and secure funds. Fraudulent cases have included a suburban homeowner who claimed to be a farmer, and a man who set up a limited liability company, claimed to have 50 employees, and used the funds to buy himself expensive cars. The SBA eventually set up safeguards late last year in response to the fraud it uncovered, but those are now proving to be obstacles to small businesses who need the funds desperately.
The SBA said the Biden administration is working with it to identify some immediate solutions to address eligibility, compliance and integrity, and promote transparency. While reviewing the initial draw of PPP loans, the SBA said it identified “anomalies,” mostly due to data mismatches and eligibility concerns, in approximately 4.7 percent of the lender-submitted data it received. Those concerns will require some follow-up between the lender and the borrower so borrowers can access a second round of loans.
The SBA said it’s committed to working with lenders and eligible borrowers to give them the necessary information for follow-up to help get small businesses back on track so they’re able to receive another round of PPP loans quickly. The agency said it will automatically move favorable decisions to approval. During the latest PPP round this month, it has already approved over 400,000 loans for approximately $35 billion.
Meanwhile, the SBA is working on easing the review process for second draw loans so they too can be processed in a more efficient way. The SBA will be hosting a nationwide call with a group of lenders to explain what additional details they will need to provide to help resolve any first draw PPP loan reviews and potential holds that are affecting approvals for second draw PPP loans. The SBA is also equipping its field team of lender relations specialists with the information they need so they can offer more support to lenders and borrowers to help them understand the issues and facilitate the appropriate responses to resolve the problems. In addition, the SBA is going to provide extra guidance to PPP lenders on the review and resolution process. The SBA also is going to leverage its partners to expand multilingual access and outreach about the PPP.
Fighting fraud
At the same time the SBA is doing all of this to ease the loan review process, it has also been making more criminal referrals to the Justice Department to pursue potential fraud cases. Syracuse University’s Transactional Records Access Clearinghouse
SBA referrals to criminal prosecutors also remained higher than usual during the first three months of fiscal year 2021, from October to December 2020. Between April 2020 and the end of December 2020, the SBA made a total of 102 new referrals.
“Just what proportion of recent referrals reflect alleged fraud under the CARES Act is uncertain, since specific details of these referrals will only become public once prosecutions actually are filed,” said the report. “But the timing of this upsurge in referrals as well as details on cases already being filed suggest that alleged fraud in applications for COVID relief was a major driving force.”
As a result of the latest coronavirus stimulus package, the SBA will now allow a second disbursement on a first draw PPP loan for some businesses. This month, the SBA issued a
“The guidance first describes cases where a partnership is able to obtain additional funds,” wrote Ed Zollars, a partner at Thomas, Zollars & Lynch CPAs in an
However, he noted that under the SBA’s original procedures for processing second draw loans, if a borrower applies for an additional disbursement on a first draw PPP loan while the SBA either has the loan under review or otherwise thinks the borrower may have been ineligible for the first draw loan, the request won’t be immediately approved.
