SBA aims to accelerate PPP lending despite fraud risks
The U.S. Small Business Administration is committed to improving the Paycheck Protection Program loan review process, even as it pursues a record number of fraud complaints.
The SBA said on Tuesday it was taking steps to make it easier to review so-called “first-draw” loans so that small businesses have as much time as possible to access much-needed PPP funds. The first loans are for companies that did not receive PPP loans last year in the first two rounds of funding before the program expired last summer. The SBA also aims to improve the “second draw” process for loans for businesses applying for a second P3 loan this year.
Last December, Congress renewed the business loan program with additional funding of $ 284 billion. The PPP has helped many businesses survive the economic fallout from the COVID-19 pandemic since it was first included in the CARES law in March. In many cases, accountants have been able to help their small business clients obtain loans and apply for debt cancellation.
However, the program also posed obstacles for many businesses who had difficulty accessing loans and navigating the ever-changing rules and procedures, especially in the first round when funding quickly ran out and ran out. had to be renewed by Congress. Minority-owned businesses, in particular, have had difficulty obtaining loans.
“Prior to this new round of PPP, the SBA supported 5.2 million PPP loan borrowers, providing more than $ 525 billion in economic assistance to small businesses and other eligible entities,” the acting administrator said. of the SBA, Tami Perriello, in a statement. “The agency is committed to ensuring that compliance checks are carried out upstream. The SBA is also committed to solving problems more effectively in the future, to ensure fair and equitable access for small businesses in every community.
The program targeted small businesses by offering them loans that could be canceled if they held up their employees for up to eight weeks, but many large businesses and organizations ended up claiming a large chunk of the money initially. And while many legitimate small businesses have had difficulty obtaining the loans, scammers have been able to set up bogus companies with little paperwork and secure funds. Some of the fraud cases included a suburban owner who claimed to be a farmer and a man who started a limited liability company, claimed to have 50 employees and used the funds to buy expensive cars. The SBA finally put in place guarantees late last year in response to the fraud it uncovered, but these are now proving to be hurdles for small businesses in desperate need of funds.
The SBA said the Biden administration was working with it to identify immediate solutions to address eligibility, compliance and integrity, and promote transparency. When reviewing the initial drawdown of PPP loans, the SBA said it identified “anomalies”, mainly due to data inconsistencies and eligibility issues, in about 4.7% of the data submitted by lenders. . These concerns will require some follow-up between the lender and the borrower so that borrowers can access a second round of loans.
The SBA said it is committed to working with lenders and eligible borrowers to provide them with the necessary follow-up information to help small businesses get back on track so they can quickly receive another series of PPP loans. The agency said it would automatically move favorable decisions to approval. In the last PPP round this month, it has already approved more than 400,000 loans worth around $ 35 billion.
Meanwhile, the SBA is working to make the process of reviewing second-draw loans easier so that they can also be processed more efficiently. The SBA will host a nationwide call with a group of lenders to explain the additional details they will need to provide to help resolve any first-draw PPP loan reviews and potential holdbacks that affect second-draw PPP loan approvals. draw. The SBA also provides its team of lender relations specialists in the field with the information they need so that they can offer more support to lenders and borrowers to help them understand the issues and facilitate appropriate responses to them. solve problems. In addition, the SBA will provide additional advice to PPP lenders on the review and resolution process. The SBA will also leverage its partners to expand multilingual access and awareness of PPP.
Fight against fraud
At the same time, the SBA is doing all of this to facilitate the loan review process, it has also made more criminal referrals to the Department of Justice to prosecute potential fraud cases. Syracuse University Transactional Document Access Clearinghouse reported Wednesday that the SBA made more criminal referrals to federal prosecutors in fiscal 2020 – a total of 91 – than in any year in the past two decades. The number of referrals began to rise last April after efforts began to identify those who submitted fraudulent applications for PPP loans.
Referrals from the SBA to criminal prosecutors also remained higher than usual in the first three months of fiscal 2021, from October to December 2020. Between April 2020 and the end of December 2020, the SBA made a total of 102 new referrals.
“What proportion of recent referrals reflect suspected fraud under the CARES Act is uncertain, as the specific details of those referrals will not become public until prosecution is initiated,” the report said. “But the timing of this surge in referrals along with details of cases already filed suggest that alleged fraud in COVID relief requests was a major driving force.”
Following the latest recovery plan against coronaviruses, the SBA will now authorize a second disbursement on a first PPP loan for certain companies. This month, the SBA released a opinion provide lenders with advice on how to deal with such situations. The guidelines address situations involving partnerships, seasonal employers, farmers, ranchers and borrowers who have fully repaid their previous PPP loans or returned part of the loan.
“The advice first describes when a partnership is able to leverage additional funds,” wrote Ed Zollars, partner at Thomas, Zollars & Lynch CPAs in a item on the Current Federal Tax Developments blog for Kaplan Financial Education. “The key requirement is that the initial loan does not include any compensation amount from the partners. “
However, he noted that under the SBA’s initial procedures for processing second-draw loans, if a borrower requests additional disbursement on a first PPP loan while the SBA has the loan under review or is considering otherwise the borrower may not have been eligible for the first draw loan, the application will not be immediately approved.