Paycheck Protection Program Use: Fact vs Fiction

The SBA’s release of PPP loan information to the public earlier this month has caused quite the storm for the media and the companies that received funds. As outlined by Treasury and SBA, with any of the receipt of funds for the PPP loans and the subsequent request for Forgiveness, the lender and SBA will be diligently reviewing the loans to ensure they qualified and were used appropriately. The media and its speculation has caused countless companies extra work, rather than allowing the financial institutions and SBA to do their job and vet the appropriateness of these requests.

Fraud

With any loan process, especially theses days when lenders are more likely to be receiving requests electronically, there is a potential for fraud. Its up to the lenders to ensure that these borrowers are truly who they say they are. Hence the rules behind FINCen Know Your Customer requirements. Of course, there is more to it than just knowing your customer, however the key is due diligence. People still will be able to defraud institutions regardless. Borrowers will misuse funds as some have with PPP or perhaps created fake or shell companies. I suspect that once the whole review process is complete, we will find that the percentage of fraud is the same as where we are now in the larger picture of digital lending. With that may come additional regulations or perhaps areas needing improvement for some institutions. 

Size Standards Small or Large

For those of us who are familiar with SBA lending, you are already aware that there are size standards. You may have heard some questions over the course of the year about whether small businesses or larger corporations were the ones to receive these funds. Even with the issuance of the PPP loans, there were guidelines for payroll expenses and more. This limited payments to higher paid employees, required the use of the funds to be at least 60% towards payroll and ensured the employees or workforce were not reduced. While the media is flooding the internet currently naming all these large corporations who received funds, its important to remember the data that SBA has provided. Based on recent number 87% of the loans issued were less than $150,000. They consisted of mostly small business not large corporations. In fact, when the program ended there were still funds available to those in need. Remember that the Small Business Administration was created to help small businesses and will continue to do so with each program they offer. 

Was it Necessary?

SBA’s release of the PPP funds questionnaire will also help determine if the funds were truly needed. Once again when this all shakes out, I think what we will see is that many businesses will have paid back or returned unused funds. Additionally, businesses have found ways to get creative and do business differently while others remained “essential” and continued to operate like before. 
Oversight

The oversight of this program doesn’t stop and start with SBA. It lies with many regulators (FDIC, OCC etc), both internal and external auditors, the financial institutions that made these loans, and more. Based on what we know in normal SBA lending, it is highly likely that these loans will be reviewed the same way any other loan would be reviewed during an audit.

Check out SBA’s Myth vs Fact released earlier this month.  For more detailed information on PPP and who received funds check out SBA’s site.

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Author Bio

As a Solutions Consultant at Baker Hill, Jennifer collaborates with the sales team and clients to give knowledgeable insights into Baker Hill NextGen® products. With 18 years in the banking industry responsible for both consumer and small business processes for banks of all sizes and previously serving as a Loan Operations Manager, Jennifer’s areas of expertise include small business loans, SBA lending, construction loans, operations management, regulatory documentation and portfolio management.