Report finds several flaws in Paycheck Protection Program

Prioritizing underserved and rural markets was among the provisions of the Paycheck Protection Program that the program has not met successfully, according to a report issued Friday by the Small Business Administration Office of the Inspector General.

The PPP provides guaranteed loans to assist certain businesses, individuals and organizations with getting back to work and outlines provisions for lending and forgiveness of these loans.

Since an additional $310 billion of funding was initiated April 27, PPP lenders have approved 2,441,369 loans totaling $183.5 billion. Of that amount, $97 billion was distributed in 1,147,890 loans by lenders with more than $50 billion in assets, $28 billion was distributed in 347,368 loans by lenders with $10-$50 billion in assets, and $58 billion was distributed in 946,111 loans by lenders with less than $10 billion in assets.

While the report found that guidance for implementing the PPP mostly aligned with the act of Congress that created it, the inspector general’s office identified three areas in addition to prioritizing underserved and rural markets that did not fully align with the provisions, including loan proceeds eligible for forgiveness, guidance on loan deferments and registration of loans.

The report stated it “did not find any evidence that SBA issued guidance to lenders to prioritize the markets indicated,” referring to underserved and rural markets. “Section 1102 of the CARES Act states that the administrator should issue guidance to lenders and agents to ensure that the processing and disbursement of covered loans prioritizes small business concerns and entities in underserved and rural markets, including veterans and members of the military community, small business concerns owned and controlled by socially and economically disadvantaged individuals, women and businesses in operation for under two years,” according to the report.

The SBA had added a requirement in its Interim Final Rule that at least 75 percent of the loan proceeds must be used for payroll, and the report found that tens of thousands of borrowers would not meet that threshold and would have to repay the nonpayroll costs in excess of 25 percent within two years.

To “better align” PPP requirements with the provisions of the CARES Act, SBA Inspector General Hannibal Ware’s report offered the following suggestions:

1. Issue guidance to lenders requiring them to prioritize borrowers in underserved markets and revise the borrower application to include the collection of optional demographic information for any future lending.

2. For loans that already have been disbursed, include optional demographic information on forms used to request loan forgiveness.

3. Evaluate the potential negative impact on borrowers regarding the specified percentage of loan proceeds eligible for forgiveness and update the requirements as necessary.

4. Issue guidance to lenders on the deferment process for PPP loans.

5. Register PPP loans by Taxpayer Identification Number.

In reference to that last suggestion, the reported noted “we found no evidence that SBA registered the loans as required by the Act” and that although the SBA collects TINs from applicants, that information was not registered.