Why did borrower information get released?
On July 6, the Small Business Administration chose to release PPP loan information at the request of Congress, the media and others given the significant taxpayer commitment to the program. This was not a decision made by banks that participated in the government program, nor one supported by them. In fact, banks were not made aware of the release of information in advance.
Why have banks prioritized their existing business customers, including large businesses?
Many banks have been prioritizing applications from existing business customers because they already have the relevant information in their systems for those borrowers. Under existing law, banks are obligated to verify a range of information before they can consider a business loan. Those requirements did not go away with the creation of PPP. That makes it harder and significantly more time consuming to onboard a new customer and immediately apply for a PPP loan. The goal was to make as many PPP loans as possible as quickly as possible. The situation is further complicated by the coronavirus crisis and the current limitations on branch operations and face-to-face meetings. If lawmakers approve additional funding, any small business that wants to apply should consider talking to SBA lenders in their area. SBA maintains that list at:
https://www.sba.gov/paycheckprotection/find
Why did your bank make/not make a certain loan?
These loans were made outside the traditional underwriting typically required by a bank, because banks were distributing government funds, not bank funds. Borrowers were required to submit payroll and expense information using a streamlined process from the SBA to get funds distributed quickly. Borrowers submitted attestations to their need for the funds and banks were counting on those borrowers doing so in good faith.
There have been reports of duplicate PPP loans being funded, what should a borrower do if they got two loans and how did that happen?
We have heard reports of borrowers getting duplicate loans, and if a borrower did get two loans, they should contact the institutions that funded those loans and will need to return one of them, or else they will have an outstanding loan without forgiveness provisions.
The problem with duplicate loans likely stemmed from a flaw in the SBA’s E-Tran system which wasn’t designed to process the 4.5 million loans in less than two months.
What about fraud?
Unfortunately, bad-actors are often opportunistic. This is a half-trillion-dollar grant program and many bad-actors likely tried to acquire a PPP loan. There will be some losses, but banks are held very high anti-money laundering requirements. Those standards did not change under PPP. However, Congress demanded that banks distribute PPP funds as quickly as possible to help stabilize the economy, and in accordance with that, bankers worked night and day to process loans and moved loans through their system faster than they would normally do so. It is important to note that while banks rushed to process the loans more quickly to help consumers - shouldering additional risk - they followed every necessary step to protect customers' information.
It is likely that some fraudsters were able to take advantage of those circumstances, but banks are going back and doing their Know-Your-Customer (KYC) checks and blowing the whistle on suspicious activity.
Banks are always concerned about fraud and they serve as a critical first line of defense to fight it. Communication between banks, law enforcement and the SBA will be critical. There are steps that can be taken by the government to reduce the risk of fraud and make banks more comfortable participating in the program.
This program seemed to have several flaws, am I right?
While there were significant technical and logistical problems with SBA’s launch of the program, banks of all sizes worked collaboratively with the government to make it a success.
Banks stepped up to distribute $349 billion on behalf of the SBA, following President Trump's signing of the CARES Act on March 27. The first funds were extended April 3 and were completely exhausted in less than two weeks. For context, the number of loans processed by SBA in that two-week period was more than the total loans it had made in the previous 14 years.
Approximately $130 billion remains in a second round of funding that has been extended to August 8.
How much money did your bank make off of this program?
This program is about helping small businesses and their employees. Banks are not participating in this program to make money, they are participating because they want to help the economy. The terms for these loans will allow some banks simply to break even given the significant resources they will have to devote to processing these applications. More accurately, some banks may not even break even.
It's important to note that at the same time, we don’t think any bank should be expected to participate in the program if they think they will lose money. Banks have their own obligation to maintain their safety and soundness.
