Report Says SBA Erred In Providing PPP Loan Guidance

A new report says the Small Business Administration (SBA) failed to follow several congressional mandates in implementing a loan program designed to aid businesses during the COVID-19 crisis, The Wall Street Journal reported.

Businesses raced to apply for the initial $340 billion of the Payroll Protection Program (PPP) funds. They were depleted in 13 days. Since then, Congress replenished the fund with an additional $310 billion.

The 40-page report issued on Friday (May 8) by the SBA Inspector General found the SBA did not inform lenders the measure was to prioritize underserved communities for the PPP under the $2.2 trillion CARES Act stimulus package.

“We found that SBA’s Interim Final Rules for implementing the PPP and SBA’s FAQs mostly aligned with the Act,” the report said. “We identified the following areas, however, that did not fully align with the Act’s provisions: Prioritizing Underserved and Rural Markets, Loan Proceeds Eligible for Forgiveness, Guidance on Loan Deferments and Registration of Loans.”

The Inspector General noted since the SBA did not provide guidance to lenders about prioritizing borrowers in underserved and rural markets, these borrowers, including rural, minority and women-owned businesses, may not have received the loans as intended.

It also found the SBA issued rules that required borrowers to use most of the loan proceeds on payroll costs to receive full forgiveness. But the report said the CARES Act passed by Congress did not mandate any specific amount be dedicated for payroll expenses.

The clause was objected to by many small businesses who said they needed the money more for overhead costs, including rent, not payroll.

In addition, the inspector general found the SBA did not follow the law’s mandates on issuing guidance on loan deferments and registering program loans, the WSJ reported.

The report was written in response to a request from senators Chuck Schumer (D-NY), Ben Cardin (D-Md.) and Sherrod Brown (D-Ohio).

There could be more problems in the second round of funding. On Friday (May 8) PYMNTS reported the SBA’s new guidance on the PPP loans issued on April 29 was a dramatic change from the original application guidelines when the program opened on April 3.

“There’s been such a change from the administration and the SBA about what they are intending for these loans,” said Judie Rinearson, a partner at K&L Gates law firm. “If you take a look at the original announcements, they are so clear. Even if you have access to other funding, not a problem. The goal is to get America running and it was clearly encouraging businesses to go out and seek these funds.”