SBA has charged off billions in unpaid PPP loans as fraud worries linger

The Small Business Administration continues to charge off more Paycheck Protection Program Loans.

Small Business Administration has already paid off 390,103 of the 11,46 million PPP loans that were made between 2020 and 2021.

The agency charges off the loan to recognize a lost. If a PPP borrower fails to submit a request for forgiveness within 10 months after the end of covered period, they must pay the lender.

If not, the lender may request that the SBA buy the loan and charge off the debt. However, this does NOT mean the borrower is off the hook.

Costs were built into the CARES Act, and the subsequent legislation Congress passed March 2020. The pandemic was also included in this legislation. Congress wanted to stop an economic disaster amid social alienation and a partial shutdown of the nation's economy. The legislation, designed to help employees and small businesses get money quickly out of the door, did not require personal guarantees or credit underwriting. Independent reports and agency watchdogs have also found that the fraud risk within the program is high.

The SBA reported to The Playbook that in February 2022 it received 36.500 requests for lenders to buy their delinquent loan. By July that year, that number had increased to 64,000.

The total number of loan charges represents approximately $11.2 billion of the $790 billion in disbursements. This represents a charge off rate of around 1.4%.

The borrower did not pay the remainder of the loan.

SBA loan default rates vary widely. The charge-off rate for its traditional 7(a), administered by banks, with stricter requirements, has varied from 0.36% to just over 2% in 2015. Charge-off rates for the SBA's disaster loans program are typically between 1% to 2%.

SBA plans to continue collecting from PPP delinquent borrowers

The SBA warned The Playbook in a recent statement that it would continue to pursue repayment of these loans.

"Our position is clear on repayment: Pay what you owe or face the consequences." "Every PPP borrower must repay any unforgiven part of their PPP loans. If they don't, the SBA reports defaulters to credit bureaus, and adds their names to federal do not pay lists. Federal agencies can then use these lists to verify whether a recipient is eligible for financial assistance." An SBA spokesperson stated.

In an independent audit report, the SBA Inspector General emphasized that the agency had not published incorrect and unknown payment estimates or corrective action plans for its PPP loan guarantees purchases and forgiveness activities.

In a published response, the SBA endorsed the recommendations of the IG and outlined a number of corrective measures and enhancements for its programs and monitoring.

The issue was largely caused by the processing of PPP loans. According to a House Select Subcommittee report on the Coronavirus Crisis, several of the largest PPP processors, and application screeners, approved fraudulent loans worth tens or hundreds of millions of dollars, often disregarding or ignoring warnings by customers and employees.

SBA criticised for PPP collection strategy

Legislators were upset that the agency would not collect Paycheck Protection Program Loans under $100,000. The SBA Inspector General released a management advisory in September criticizing the SBA’s decision. It said the agency failed to analyze the cost-benefit of pursuing these loans or whether they could have pursued alternative options.

The lawmakers were concerned that the agency would not also collect on smaller EIDL loan. The agency stated that its PPP collection attempts on other loans had yielded little and cost more in the end to try to collect than just to write off the loan. The SBA told The Playbook in statements that all EIDL loan holders are required to repay their loans.

Michael Ware, SBA Inspector General, said at a recent hearing the SBA must make every effort to collect unpaid PPP loan.

There are some really easy ways to try to collect the money. Ware stated that it sent a bad message about how serious we are. "I think it sends out a negative message to future emergency programs, or programs throughout the government.

It is important to note that not all charged-off loans are lost. The borrower can apply for forgiveness until the PPP loan matures, even if it has been purchased by the SBA and charged off. The forgiveness amount will be used to reduce the amount owed by borrower.

All of this is after the Covid-19 money was rushed in 2020 and 2021 to keep the economy afloat and small businesses and individuals afloat for prolonged periods during government-mandated shut downs. While it was successful, the SBA also made millions of loans with little checks and no strings attached to them. Many of these businesses are now saddled with debt.