The Small Business Administration has failed to issue guidance to lenders to help ensure that pandemic Paycheck Protection Program Loans reach the businesses that most need them, as required by federal law, the SBA’s Inspector General said in a report issued late Friday.
In addition, since the agency has failed to require the collection of demographic information about borrowers, officials cannot determine if the loans are reaching businesses that need the funds.
“Because 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,” the IG said.
The PPP loan program was created to help small businesses stay open and pay their employees during the coronavirus crisis. Critics of the program have said that thousands of loans actually went to larger businesses, including public companies.
The IG also criticized the SBA’s requirement that 75% of the loans be used by businesses for payroll in order to have their loans forgiven. “It may be important to consider that many small businesses have more operational expenses than employee expenses,” the IG noted.
Democrats on Capitol Hill have criticized that rule, saying that it is too inflexible and makes many small businesses ineligible for the loans. However, Treasury Secretary Steven Mnuchin has resisted calls for that requirement to be loosened.
Democrats and others had called for the IG probe of the SBA’s work. In a letter requesting the investigation, Sen. Elizabeth Warren (D-Mass.) and Rep Nydia Velazquez (D-N.Y.) said the 75% requirement was not part of the law, but instead, part of the rules issued implementing the act. They are objecting to the requirement.
The IG recommended that the agency issue guidance to prioritize borrowers in underserved markets. In addition, the IG report said the agency should collect demographic information to ensure that the loans are going to those targeted businesses and the agency should reevaluate the requirement that 75% of the loan proceeds be used for payroll.