PPP Didn’t Prioritize Underserved Borrowers, Inspector General Report Finds

TOPLINE

As the troubled Paycheck Protection Program faces increasing scrutiny from Congress and the public, an inspector general report found Friday that the Small Business Administration didn’t follow congressional mandates when implementing the program, failing to issue guidance telling lenders to prioritize underserved borrowers.

KEY FACTS

The IG report found the agency “mostly” followed the requirements set by Congress, but did not issue guidance to banks telling them to prioritize business in rural markets, companies that have only been in business for two or less years as well as businesses owned veterans, women and economically disadvantaged individuals.

The SBA also didn’t provide a field for borrowers to fill out demographic information on the loan application, so it’s unlikely the SBA will ever determine how much money went into markets Congress intended to be prioritized.

The report also faulted the SBA for adding a rule mandating that 75% of the funds be used to retain payroll even though Congress didn’t require that.

The report was issued in response to a letter from Democratic Senators Sens. Chuck Schumer (D., NY), Ben Cardin (D., Md.) and Sherrod Brown (D., Ohio), who asked in late April whether lenders prioritized larger, weather clients as opposed to harder hit small businesses.

The SBA did not immediately respond to request for comment from Forbes.

Crucial quote

“Because SBA did not provide guidance to lenders about prioritizing borrowers in underserved and rural markets, these borrowers, including rural, minority and women-owned may not have received the loans as intended,” the report says.

Key background

The PPP, which was included in the stimulus package passed by Congress at the end of March, was intended as a lifeline for small businesses struggling in the wake of the coronavirus. But the loan program got off to a rocky start with a rushed launch and early computer glitches. Within days, several public companies, such as Shake Shack
SHAK
and Ruth’s Hospitality group, began returning their loans after widespread backlash.
Forbes found that much of the cash went to companies with ongoing relationships with banks issuing loans.

Further reading

Flash Report Small Business Administration’s Implementation of the Paycheck Protection Program Requirements (SBA Inspector General)

Five Numbers That Sum Up The Troubled PPP Program (Forbes)

Crony Capitalism: Why The Best-Connected Businesses Got Much Of The SBA Coronavirus Cash (Forbes)

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