Court filing
GAO-21-577 — Paycheck Protection Program: SBA Added Program Safeguards, but Additional Actions Are Needed (July 2021)
Record facts
| Court | U.S. Government Accountability Office |
|---|---|
| Filed | 2021-07-01 |
Summary
A report to congressional addressees by the United States Government Accountability Office, GAO-21-577, issued July 2021, on safeguards in the Paycheck Protection Program approval process, the loan forgiveness process and SBA oversight of PPP loans and lenders. It states that SBA implemented PPP in April 2020 and that initial limited safeguards resulted in improper payments and fraud risks, and notes GAO recommendations made in June 2020 and March 2021. It reports that, as of May 2021, SBA had made determinations on 3.3 million loan forgiveness applications without issuing guidance on key aspects of the process, and that Congress has provided commitment authority of about $814 billion since March 2020. GAO makes four recommendations and states that SBA generally agreed with them. The report carries six appendixes, including lender survey results and agency comments.
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Full text
PAYCHECK
PROTECTION
PROGRAM
SBA Added Program
Safeguards, but
Additional Actions
Are Needed
Report to Congressional Addressees
July 2021
GAO-21-577
United States Government Accountability Office
United States Government Accountability Office
Highlights of GAO-21-577, a report to
congressional addressees
July 2021
PAYCHECK PROTECTION PROGRAM
SBA Added Program Safeguards, but Additional
Actions Are Needed
What GAO Found
The Small Business Administration (SBA) quickly implemented the Paycheck
Protection Program (PPP) in April 2020 to assist small businesses adversely
affected by COVID-19. But SBA’s initial limited program safeguards resulted in
improper payments and fraud risks. In June 2020 and March 2021, GAO
recommended that SBA do more to oversee PPP and identify and respond to
fraud risks. In response, SBA implemented compliance checks for applications
submitted in 2021 and stated it would conduct a fraud risk assessment.
PPP loans are fully forgivable (do not have to be repaid) if borrowers meet
certain conditions. As of May 2021, SBA had made determinations on 3.3 million
loan forgiveness applications (see figure) but had not issued guidance for key
aspects of the forgiveness process. Specifically:
•
SBA had not yet finalized a process on how lenders can claim the SBA
guarantee if the loan is not fully forgiven or when they have evidence the
business ceased operations or declared bankruptcy. Without such a process,
lenders’ capital will remain tied up, limiting their ability to make non-PPP
loans to small businesses.
•
SBA had not implemented, nor sought exceptions to, a statutory requirement
to purchase loans prior to loan forgiveness upon submission of reports by
lenders concerning the amount expected to be forgiven.
SBA Loan Forgiveness Determinations on PPP Loans Made During Round 1, as of May 17,
2021
SBA has enhanced its oversight of PPP, such as by conducting in-depth reviews
of selected loans, but it has not documented certain loan review steps or
developed a process to improve communication with lenders.
•
SBA has not yet finalized procedures for senior-level reviews of borrower
eligibility and loan forgiveness decisions, increasing the risk of inconsistent or
incorrect loan determinations.
•
Although SBA has developed tools such as a web portal to communicate
with lenders, it has not developed a process to ensure its responses to
lenders are timely. Some lenders responding to GAO’s survey said SBA had
not responded in a timely manner or at all to inquiries on loan forgiveness
applications, which has created confusion and uncertainty for lenders and
borrowers and made it difficult for them to make management decisions.
View GAO-21-577. For more information,
contact William B. Shear at (202) 512-8678 or
shearw@gao.gov.
Why GAO Did This Study
Since March 2020, Congress has
provided commitment authority of
about $814 billion for PPP, which
provides small businesses with low-
interest loans that SBA fully
guarantees.
The CARES Act includes a provision
for GAO to monitor funds provided for
the COVID-19 pandemic. This report
examines (1) safeguards that SBA put
in place during the PPP loan approval
process, (2) the PPP loan forgiveness
process, including processes for
unforgiven loans, and (3) SBA’s
oversight of PPP loans and lenders.
GAO reviewed SBA documentation;
surveyed a generalizable sample of
PPP lenders; analyzed data on loan
forgiveness applications; compared
SBA processes against federal
guidance on credit programs; and
interviewed staff from SBA, the
Department of the Treasury, and four
trade associations representing
lenders.
What GAO Recommends
GAO recommends that SBA (1) finalize
a process for claiming the PPP loan
guarantee, (2) implement the statutory
requirement to purchase PPP loans in
advance of loan forgiveness or seek
statutory exceptions to the
requirement, (3) finalize procedures for
the steps of its loan review process
that are not yet documented, and (4)
develop and implement a process to
ensure timely communication with
lenders. SBA generally agreed with the
four recommendations, including
seeking statutory flexibility or repeal of
the requirement to purchase PPP
loans in advance of loan forgiveness.
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GAO-21-577 Paycheck Protection Program
Letter
1
Background
4
SBA’s Initial Emphasis on Speed Contributed to Evolving
Guidance and Program Integrity Challenges
8
SBA Has Made More Than 3 Million Loan Forgiveness
Determinations, but Lenders Cited Challenges with the
Forgiveness Process and SBA Lacks Processes for Certain
Unforgiven Loans
18
SBA Implemented a Loan Review Process but Has Not
Documented Certain Review Steps or Developed a Process to
Improve Communication with Lenders
36
Conclusions
50
Recommendations for Executive Action
51
Agency Comments and Our Evaluation
51
Appendix I
Objectives, Scope, and Methodology
58
Appendix II
Results from Survey of Paycheck Protection Program Lenders
63
Appendix III
Key Paycheck Protection Program Implementation Decisions
74
Appendix IV
Comparison of Paycheck Protection Program Processes
with Guidance for Managing Credit Programs
81
Appendix V
Comments from the Small Business Administration
85
Appendix VI
GAO Contact and Staff Acknowledgments
88
Tables
Table 1: Characteristics of First Draw Paycheck Protection
Program Loans
6
Contents
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GAO-21-577 Paycheck Protection Program
Table 2: SBA Processing Times for PPP Loan Forgiveness
Payments by Forgiveness Amount, as of May 17, 2021
25
Table 3: GAO Assessment of SBA Processes Compared against
Circular A-129 Standards
44
Table 4: How many PPP applications did your organization
receive? (Question 1)
63
Table 5: How many PPP loans did your organization fund?
(Question 2)
63
Table 6: In general, did your organization accept applications from
the following types of borrowers? (Question 3)
64
Table 7: Among PPP loan applications that your institution did not
approve, how common was each of the following reasons
for why your organization did not approve an application?
(Question 4)
64
Table 8: Approximately what percentage of your organization’s
approved PPP loans went to existing clients (those with
either a previous depository or lending relationship)?
(Question 5)
65
Table 9: Considering the information provided by SBA for the PPP
loan guarantees that were available through August 8,
2020, how helpful to your organization was the
information about the loan approval process (e.g., interim
final rules, FAQs, training)? (Question 6)
65
Table 10: How did the level of resources required for processing
and approving loan applications differ from your
expectations when you started participating in the
program? (Question 7)
66
Table 11: How challenging, if at all, was each of the following to
your organization when approving PPP loan applications
from borrowers? (Question 8)
66
Table 12: Did your organization use internal staff, a third-party
vendor, or both to intake or review PPP loan applications
or to submit those applications to SBA? (Question 9)
68
Table 13: Did your organization use the Federal Reserve’s PPP
Liquidity Facility (PPPLF)? (Question 10)
68
Table 14: How helpful has the PPPLF been to your organization?
(Question 10b)
68
Table 15: Considering the information provided by SBA, how
helpful to your organization was the information about the
loan forgiveness process (e.g., interim final rules, FAQs,
training)? (Question 11)
69
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GAO-21-577 Paycheck Protection Program
Table 16: How has the level of resources required for making loan
forgiveness decisions differed from your expectations
when you started participating in the program? (Question
12)
69
Table 17: On average, about how many staff hours has it taken
your organization to review a borrower’s loan forgiveness
form and related documentation and submit your loan
forgiveness decision to SBA? (Question 13)
69
Table 18: About what percentage of loan forgiveness applications
received to date were submitted with Form 3508, Form
3508EZ, and Form 3508S? (Question 14)
70
Table 19: For what parts of the loan forgiveness process does
your organization use internal staff, a third-party vendor,
or both to process loan forgiveness applications?
(Question 15)
71
Table 20: How challenging, if at all, are each of the following to
your organization during the loan forgiveness process?
(Question 16)
71
Table 21: Considering the information provided by SBA for the
PPP loan guarantees that were available on or after
January 11, 2021, how helpful to your organization was
the information about the loan approval process (e.g.,
interim final rules, FAQs, training)? (Question 17)
73
Table 22: How helpful was the information provided by SBA for
the loan guarantees that became available on or after
January 11, 2021, compared to the information SBA
provided on funding available through August 8, 2020?
(Question 18)
73
Table 23: How have the costs to your organization of participating
in PPP differed from expectations when your organization
began participating in the program? (Question 21)
73
Table 24: Key SBA or Treasury Implementation Decisions for
Paycheck Protection Program
74
Table 25: Consistency of Small Business Administration (SBA)
Processes with Selected Office of Management and
Budget (OMB) Standards
81
Figures
Figure 1: Timeline of Key Paycheck Protection Program Events,
as of May 31, 2021
5
Figure 2: Timeline for Paycheck Protection Program Round 1
9
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GAO-21-577 Paycheck Protection Program
Figure 3: Paycheck Protection Program (PPP) Loan Forgiveness
Process and Timeline for Round 1 Loans
21
Figure 4: SBA’s Loan Forgiveness Determinations on PPP Loans
Made during Round 1, as of May 17, 2021
22
Figure 5: Range and Average Number of Days by Forgiveness
Amount for SBA to Process PPP Forgiveness Payments
to Lenders, as of May 17, 2021
24
Figure 6: Range and Average Number of Days, by Month
Submitted, for SBA to Process PPP Forgiveness
Payments to Lenders, as of May 17, 2021
26
Figure 7: PPP Loan Forgiveness Decisions Submitted to SBA by
Form Used and Forgiveness Amount, as of May 17, 2021
28
Figure 8: PPP Loan Forgiveness Decisions Submitted to SBA, by
Number of Employees, as of May 17, 2021
29
Figure 9: Contractor Loan Eligibility Review Process for the
Paycheck Protection Program
37
Figure 10: Results of SBA’s Expedited Review Process for the
Paycheck Protection Program, as of April 2021
39
Figure 11: SBA Loan Eligibility and Forgiveness Review Process
for the Paycheck Protection Program
41
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GAO-21-577 Paycheck Protection Program
Abbreviations
BSA
Bank Secrecy Act
CARES Act
Coronavirus Aid, Relief, and Economic Security Act
DOJ
Department of Justice
FAQ
frequently asked questions
Federal Reserve
Board of Governors of the Federal Reserve System
OIG
Office of Inspector General
OMB
Office of Management and Budget
PPP
Paycheck Protection Program
SAR
suspicious activity reports
SBA
Small Business Administration
Treasury
Department of the Treasury
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GAO-21-577 Paycheck Protection Program
441 G St. N.W.
Washington, DC 20548
July 29, 2021
Congressional Addressees
There are more than 30 million small businesses in the United States,
many of which have been adversely affected by Coronavirus Disease
2019 (COVID-19). The Paycheck Protection Program (PPP) was
designed to assist affected small businesses by providing low-interest
loans that are fully forgivable (do not have to be repaid) under certain
conditions. Since March 2020, Congress has provided approximately
$814 billion in commitment authority for PPP. As of May 31, 2021, the
Small Business Administration (SBA), which administers the program and
guarantees the loans, had processed more than 11.8 million loans
totaling about $800 billion.1
As we reported in June 2020, SBA moved quickly to implement PPP so
that lenders could begin distributing funds as quickly as possible.2 For
example, SBA’s first interim final rule allowed lenders to rely on borrowers
self-certifying their eligibility and plans to use loan proceeds, and it
required limited lender review of borrower documents to determine the
qualifying loan amount and eligibility for loan forgiveness.3 While millions
of small businesses have benefited from PPP, the speed with which SBA
implemented the program left it with limited safeguards to identify and
respond to program risks, including susceptibility to improper payments
and fraud.
Since June 2020, we have reported on the implementation of PPP
several times, including on the potential for fraud and the need for better
1PPP was authorized under SBA’s 7(a) small business lending program.
2GAO, COVID-19: Opportunities to Improve Federal Response and Recovery Efforts,
GAO-20-625 (Washington, D.C.: June 25, 2020).
3Congress later amended and expanded a PPP lender hold harmless provision, providing
that lenders may rely on any certification or documentation submitted by applicants that is
submitted, and attests that it is submitted, pursuant to all applicable statutory
requirements. Pub. L. No. 116-260, div. N, tit. III, § 305, 134 Stat. 1182, 1996-97 (2020).
Congress made this amendment retroactive, as if it was included in the original statutory
language.
Letter
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GAO-21-577 Paycheck Protection Program
controls.4 We included PPP as a new area on our High-Risk List in March
2021 because of the potential for fraud, significant program integrity risks,
and need for much improved program management and oversight.5 We
also cited the results of SBA’s most recent financial statement audit, in
which the auditor issued a disclaimer of opinion on SBA’s financial
statements because SBA was unable to provide adequate documentation
to support a significant number of transactions and account balances
related to PPP.6
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
includes a provision for GAO to conduct monitoring and oversight of the
use of funds made available to prepare for, respond to, and recover from
the COVID-19 pandemic.7 This report examines (1) safeguards that SBA
put in place during the PPP loan approval process, (2) the PPP loan
forgiveness process, including processes for unforgiven loans, and (3)
SBA’s oversight of PPP loans and lenders.
For all of the objectives, we surveyed a generalizable sample of 1,383
PPP lenders to obtain their perspectives on the loan approval and loan
forgiveness processes and the program in general. The survey closed on
April 15, 2021, and we received 781 responses. We obtained a weighted
4See GAO-20-625; COVID-19: Brief Update on Initial Federal Response to the Pandemic,
GAO-20-708 (Washington, D.C.: Aug. 31, 2020); COVID-19: Federal Efforts Could Be
Strengthened by Timely and Concerted Actions, GAO-20-701 (Washington, D.C.: Sept.
21, 2020); COVID-19: Urgent Actions Needed to Better Ensure an Effective Federal
Response, GAO-21-191 (Washington, D.C.: Nov. 30, 2020); COVID-19: Critical Vaccine
Distribution, Supply Chain, Program Integrity, and Other Challenges Require Focused
Federal Attention, GAO-21-265 (Washington, D.C.: Jan. 28, 2021); and COVID-19:
Sustained Federal Action Is Crucial as Pandemic Enters Its Second Year, GAO-21-387
(Washington, D.C.: Mar. 31, 2021).
5GAO, High Risk Series: Dedicated Leadership Needed to Address Limited Progress in
Most High-Risk Areas, GAO-21-119SP (Washington, D.C.: Mar. 2, 2021).
6Small Business Administration, Office of Performance Management and the Chief
Financial Officer, Agency Financial Report Fiscal Year 2020 (Washington, D.C.: Dec. 18,
2020).
7Pub. L. No. 116-136, § 19010, 134 Stat. 281, 579-80 (2020). We regularly issue
government-wide reports on the federal response to COVID-19. For the latest report, see
GAO, COVID-19: Continued Attention Needed to Enhance Federal Preparedness,
Response, Service Delivery, and Program Integrity, GAO-21-551 (Washington, D.C.: July
19, 2021). Our next government-wide report will be issued in October 2021 and will be
available on GAO’s website at https://www.gao.gov/coronavirus.
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GAO-21-577 Paycheck Protection Program
response rate of 57.3 percent.8 We also interviewed four lending
associations to obtain their perspectives on SBA’s implementation of
PPP. We selected these organizations because they represent a variety
of lenders that offered PPP loans, including banks, credit unions, and
community-based financial institutions. In addition, we interviewed
officials in SBA’s Office of Capital Access, which administers PPP.
For the first objective, we analyzed SBA’s interim final rules, procedural
notices, and responses to frequently asked questions (FAQ) to determine
the initial safeguards SBA put in place for approval of SBA loans and any
changes SBA made as the program evolved. We also reviewed reports
issued by the SBA Office of Inspector General (OIG), SBA’s financial
statement audit, and prior GAO reports. To determine the extent to which
PPP lenders were associated with fraudulent borrowers, we reviewed
Department of Justice (DOJ) media releases on fraud cases. We
compared borrowers identified through these releases to PPP loan-level
data.
For the second objective, we analyzed SBA’s interim final rules,
procedural notices, FAQs, and loan forgiveness forms. Additionally, we
interviewed officials from an SBA contractor that developed the PPP loan
forgiveness platform and an SBA contractor that conducted PPP loan
reviews. We also compared SBA’s policies and processes against the
Office of Management and Budget’s (OMB) guidance for the
management and operation of federal credit programs (Circular A-129)
and the CARES Act.9 We analyzed SBA loan-level data to determine
characteristics of loan forgiveness determinations, as of May 17, 2021.
We assessed the reliability of these data by reviewing related
documentation, interviewing knowledgeable agency officials, and
performing electronic testing. We determined the data were sufficiently
reliable for the purposes of describing characteristics associated with
SBA’s processing of loan forgiveness applications.
For the third objective, we reviewed SBA’s rules and guidance for PPP
borrowers and lenders and internal SBA policies and procedures covering
loan and loan forgiveness reviews. We compared the policies and
8We used a weighted response rate because our survey sample incorporates strata with
different probabilities of selection. A weighted response rate may more accurately reflect
the level of participation. For example, large units that contribute relatively more to the
estimate of a total would have a larger “weight” on the response rate.
9Office of Management and Budget, Policies for Federal Credit Programs and Non-Tax
Receivables, OMB Circular No. A-129 (Washington, D.C.: January 2013).
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GAO-21-577 Paycheck Protection Program
procedures SBA used to manage elements of PPP against OMB Circular
A-129. We focused on consistency with selected standards related to
applicant screening, loan documentation, managing lenders and
servicers, and credit program management. We also compared SBA’s
policies and procedures against federal internal control standards for
control activities.10 Appendix I describes our scope and methodology in
greater detail. Appendix II contains results from our lender survey.
We conducted this performance audit from June 2020 to July 2021 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
In response to the far-reaching public health and economic crises
resulting from COVID-19, in March 2020, Congress passed, and the
President signed into law, the CARES Act, which provides over $2 trillion
in emergency assistance and health care response for individuals,
families, and businesses affected by COVID-19.
Among other things, the act established the Paycheck Protection
Program, which was designed to help small businesses affected by
COVID-19. Business demand for the loans led to PPP being reauthorized
several times after its initial launch on April 3, 2020 (see fig. 1).
•
SBA stopped accepting new applications on April 15, 2020, because
the initial appropriation was exhausted.
•
Following an additional appropriation, SBA resumed lending on April
27, 2020, and businesses could apply for a PPP loan through August
8, 2020.11
•
The Consolidated Appropriations Act, 2021, authorized additional
loans under the program, including second PPP loans (second draw
10GAO, Standards for Internal Control in the Federal Government, GAO-14-704G
(Washington, D.C.: Sept. 10, 2014).
11The application period for PPP initially ended on June 30, 2020. On July 4, 2020,
legislation was enacted that extended the application period until August 8, 2020. Pub. L.
No. 116-147, 134 Stat. 660 (2020).
Background
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GAO-21-577 Paycheck Protection Program
loans) of up to $2 million for PPP borrowers provided they met certain
criteria.12
•
SBA relaunched the program (Round 2) on January 11, 2021, with a
program expiration date of March 31, 2021. Congress later extended
the program to allow small businesses to apply for a PPP loan
through May 31, 2021, but most of the program’s funds were
exhausted before then. SBA stopped accepting new applications from
most lenders on May 4, 2021.13
Figure 1: Timeline of Key Paycheck Protection Program Events, as of May 31, 2021
12PPP borrowers are eligible to receive a second PPP loan of up to $2 million provided
that they meet certain criteria, such as having not more than 300 employees, using the full
amount of their initial PPP loan on or before the expected date of second PPP loan
disbursement, and documenting revenue losses in calendar year 2020. Pub. L No. 116-
260, div. N, tit. III, § 311, 134 Stat. 1182, 2001 (2020); see also Business Loan Program
Temporary Changes; Paycheck Protection Program Second Draw Loans, 86 Fed. Reg.
3712 (Jan. 14, 2021).
13SBA continued to accept new applications from community financial institutions because
funds set aside for them remained. SBA also continued to process pending applications.
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GAO-21-577 Paycheck Protection Program
PPP loans, which are made by lenders but 100 percent guaranteed by
SBA, are low interest (1 percent) and fully forgivable if certain conditions
are met.14 The borrower can apply through its lender to have the loan
forgiven any time on or before the maturity date of the loan if the borrower
has used all the loan proceeds for which the borrower is requesting
forgiveness.15 At least 60 percent of the loan forgiveness amount must be
for payroll expenses to qualify for full loan forgiveness, and there is a
simplified loan forgiveness application process for loans of $150,000 or
less.16 See table 1 for other characteristics of PPP loans as currently
implemented, and appendix III for information on SBA’s implementation of
key PPP terms.
Table 1: Characteristics of First Draw Paycheck Protection Program Loans
Characteristic
Detail
Interest rate
1 percent
Loan term
Loans issued prior to June 5, 2020: 2 years, unless mutually extended
Loans issued on or after June 5, 2020: 5 years
Permissible use of loan
proceeds for potential
forgiveness
•
At least 60 percent must be used for payroll costs
•
Up to 40 percent may be used for eligible nonpayroll costs, such as covered mortgage interest, rent,
and utility paymentsa
Eligibility
Examples of eligible entities affected by COVID-19 include:
•
Sole proprietors, independent contractors, and self-employed persons
•
Any small business concern that meets SBA’s size standards (either the industry size standard or
the alternative size standard)
•
Any business, 501(c)(3) nonprofit organization, 501(c)(19) veterans organization, or tribal business
concern with 500 or fewer employees or that meets the SBA industry size standard, if more than
500
•
Any business in the accommodations and food services sector that has more than one physical
location and employs less than 500 people per physical location
14The loan guarantee covers a lender’s losses in the event of a borrower default, reducing
the risk of lending to small businesses.
15However, a borrower applying for forgiveness of a second draw PPP loan that is more
than $150,000 must submit the loan forgiveness application for its first draw loan before or
simultaneously with the loan forgiveness application for its second draw loan. Forgivable
expenses are incurred over the covered period for the PPP loan. The “covered period” is
the period following receipt of a PPP loan during which borrowers can spend the loan
proceeds on covered expenses. The covered period begins on the date a lender
disburses the loan and ends on a date selected by the borrower during the period
between 8 and 24 weeks after disbursement.
16SBA originally required borrowers to spend at least 75 percent of forgivable expenses on
payroll costs, but this requirement was modified by later legislation.
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Characteristic
Detail
Collateral/personal
guarantee
None required
Length of time to use loan
proceeds for forgiveness
Up to 24 weeks after the loan’s disbursement dateb
Source: GAO analysis of Small Business Administration (SBA) information. | GAO-21-577
aIf a borrower uses less than 60 percent of the loan proceeds on payroll costs, then the borrower
would be eligible for partial forgiveness based on the percentage of proceeds spent on payroll costs.
bPrior to June 5, 2020, the covered period was defined as 8 weeks after the loan’s disbursement date.
As of May 31, 2021, lenders had made about 11.8 million PPP loans,
totaling about $800 billion. These lenders included nonbanks who had not
previously participated in SBA programs.17 More than half of these loans
were made during Round 2 of PPP (6.7 million totaling about $278
billion). Of the 6.7 million loans approved in 2021, about 3.8 million
(totaling about $69 billion) were first draw loans and about 2.9 million
(totaling about $209 billion) were second draw loans to borrowers who
received a PPP loan during 2020. SBA made about 5.1 million loans
(totaling about $522 billion) during Round 1 (April through August 2020).
The Office of Capital Access, which manages SBA’s other loan guarantee
programs such as 7(a), is responsible for managing PPP. SBA has
worked with the Department of the Treasury (Treasury) to implement the
program. Among other things, Treasury consulted with SBA on program
rules and was jointly responsible with SBA under the CARES Act for
approving lenders new to SBA to issue PPP loans.
17Existing 7(a) lenders and some other SBA lenders were automatically allowed to
participate in PPP. Lenders who had not previously participated in a SBA program had to
apply and be approved before they could participate in PPP. Nonbanks are broadly
defined as institutions other than banks that offer financial services.
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In an effort to launch PPP quickly, SBA relied on an evolving set of
program rules and guidance. Because it was an emergency program,
SBA officials told us the agency did not issue a consolidated guidance
document (such as standard operating procedure or program guide)
when PPP was launched.
Instead, SBA relied on interim final rules, updates to FAQs, and
procedural notices to implement PPP (see fig. 2). As of June 1, 2021,
SBA had issued 30 interim final rules and 26 updates to its PPP FAQs. Of
these, the majority (22 interim final rules and 19 FAQ updates) were
made from March 31, 2020, when SBA issued the initial program
guidance, through August 8, 2020 (the end of the first round). According
to SBA officials, SBA and Treasury continued to develop and issue rules
and guidance in an effort to be responsive to lenders and borrowers and
to comply with statutory changes to the program.
SBA’s Initial
Emphasis on Speed
Contributed to
Evolving Guidance
and Program Integrity
Challenges
SBA’s Guidance Was
Decentralized and
Frequently Changed
during Round 1 Loan
Processing
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GAO-21-577 Paycheck Protection Program
Figure 2: Timeline for Paycheck Protection Program Round 1
aThe term guidance includes items such as procedural notices.
Through these rules and guidance, SBA communicated decisions on its
implementation of PPP. For example, SBA announced in its first interim
final rule that borrowers must use at least 75 percent of the loan proceeds
for payroll costs. Congress later modified some aspects of the program in
response to SBA’s implementation decisions, such as decreasing the
amount that must be used for payroll costs to 60 percent. (See app. III for
information on SBA’s implementation of key program terms.)
Our survey of PPP lenders indicated that the changing guidance and its
presentation in multiple documents of various types created challenges
for these lenders during Round 1. We estimate that about 87 percent of
PPP lenders thought changes in program rules and guidance were either
very or moderately challenging when approving PPP loan applications
from borrowers.18 One survey respondent noted that the constantly
changing guidance was particularly challenging because the bank was
receiving many PPP applications at the same time and had to read
18The 95 percent confidence interval for this estimate is (84, 89). Survey respondents
were asked to rate challenges using the following scale: very challenging, moderately
challenging, somewhat challenging, not at all challenging, and do not know.
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dozens of pages of new guidance. Similarly, we estimate that 75 percent
of lenders thought the lack of a central document containing the
program’s rules and guidance was either very or moderately
challenging.19
The evolving guidance also likely contributed to confusion among
applicants. We estimate that 67 percent of lenders thought that
borrowers’ lack of understanding of the program’s terms and conditions
was very or moderately challenging.20 For example, one survey
respondent stated that SBA issued too many interim final rules, which
was extremely confusing for lenders and borrowers. Lenders also cited
challenges with changing guidance for the loan forgiveness process,
which we discuss later in this report.
In an effort to help small businesses quickly, SBA put limited initial
safeguards in place. This lack of initial safeguards contributed to the
increased risk of improper payments and fraud that we and others have
previously reported.
In June 2020, we reported that SBA put limited safeguards in place for
approval of PPP loans in an effort to get loans to borrowers quickly, and
we recommended additional SBA oversight.21 For example, SBA’s first
interim final rule allowed lenders to rely on borrower self-certifications to
determine borrower eligibility and use of loan proceeds. SBA’s
requirements for lenders were limited to actions such as confirming
receipt of borrower certifications and supporting payroll documentation—
leaving the program more susceptible to fraudulent applications.22
Although lenders were not required to conduct detailed underwriting of
PPP applications, they had to apply relevant Bank Secrecy Act (BSA)
19The 95 percent confidence interval for this estimate is (72, 78).
20The 95 percent confidence interval for this estimate is (63, 70).
21GAO-20-625.
22As previously noted, Congress amended and expanded a CARES Act hold harmless
provision for lenders in the Consolidated Appropriations Act, 2021. Pub. L. No. 116-260,
div. N, tit. III, § 305, 134 Stat. 1182, 1996-97 (2020).
SBA’s Initial
Implementation of PPP
Contributed to Increased
Risk of Improper
Payments and Extensive
Fraud
Limited Initial Safeguards
for Loan Approval
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GAO-21-577 Paycheck Protection Program
program requirements.23 SBA required lenders not previously subject to
BSA requirements to establish a BSA compliance program and collect
additional information for new customers to satisfy BSA requirements.24
Many PPP lenders made loans predominantly to existing clients. Because
these clients required the bank to conduct less due diligence, their
applications could be processed more quickly. Based on our survey
results, we estimate about two-thirds of PPP lenders made at least 76
percent of their loans to existing clients.25 Twenty-three percent of lenders
did not make any loans to borrowers with whom they had no prior
relationship.26
In April 2020, SBA and Treasury announced SBA would review loans of
more than $2 million to confirm borrower eligibility after the borrower
applied for loan forgiveness. In May 2020, SBA released an interim final
rule stating that it would review any PPP loan it deemed appropriate.
However, SBA provided few details on these reviews at that time. Our
June 2020 report concluded that because SBA had limited time to
implement safeguards for the PPP loan approval process and assess
program risks, ongoing oversight would be crucial.
Therefore, we recommended that SBA develop and implement plans to
identify and respond to risks in PPP to ensure program integrity, achieve
program effectiveness, and address potential fraud, including in loans of
$2 million or less. SBA neither agreed nor disagreed with our
23The Bank Secrecy Act requires banks and other financial institutions to take precautions
against money laundering and other illicit financial activities by conducting due diligence
activities and informing Treasury of suspicious activity by their customers. Because of the
limited loan underwriting, lenders and SBA have less information from applicants to detect
errors or fraud. The first interim final rule’s requirement that lenders follow applicable BSA
requirements may require lenders to collect additional identifying information from
borrowers before approving a PPP loan.
24SBA requires that entities not currently subject to BSA requirements establish an anti-
money laundering compliance program equivalent to that of a comparable federally
regulated institution before engaging in PPP lending activities (including making PPP
loans to eligible new or existing customers).
25The 95 percent confidence interval for this estimate is (65, 71). Ten percent of lenders
estimated they made less than 50 percent of their PPP loans to clients with whom they
had a previous depository or lending relationship. The 95 percent confidence interval for
this estimate is (8, 12).
26The 95 percent confidence interval for this estimate is (20, 26).
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GAO-21-577 Paycheck Protection Program
recommendation at that time. (We discuss the actions SBA subsequently
took in response to this recommendation later in this report.)
We and others have reported on the increased risk of improper payments
and fraud in PPP because of the limited initial safeguards.27
•
Estimating improper payments. As we reported in November 2020,
it is especially important for agencies with large appropriated
amounts, like SBA, to quickly estimate their improper payments when
there are concerns improper payments could be widespread.28
Because SBA had not done this for PPP, we recommended SBA
expeditiously estimate improper payments and report estimates and
error rates for PPP. SBA neither agreed nor disagreed with our
recommendation at that time, but stated it was planning to conduct
improper payment testing for PPP. In February 2021, SBA officials
told us the agency had submitted a sampling plan for this testing to
OMB, which would be used to estimate both improper payments and
error rates for PPP. According to SBA officials, SBA anticipates
starting the improper payment analysis in the fourth quarter of fiscal
year 2021.
•
Financial statement audit. In December 2020, SBA’s independent
financial statement auditor issued a disclaimer of opinion on SBA’s
fiscal year 2020 consolidated financial statements, meaning the
auditor was unable to express an opinion because of insufficient
evidence.29 More specifically, the auditor reported SBA was unable to
provide adequate documentation to support a significant number of
transactions and account balances related to PPP as a result of
inadequate processes and controls. The auditor also found SBA did
not design and implement adequate controls for PPP approvals, and
made several recommendations to improve the controls.
27Improper payments are payments that should not have been made or were made in the
incorrect amount, and may suggest that a program is vulnerable to fraud. While an
improper payment may be the result of fraudulent activity, not all improper payments are
the result of fraud. Fraud involves obtaining something of value through willful
misrepresentation. The judicial or other adjudicative system determines whether an act is
fraud.
28GAO-21-191.
29Small Business Administration, Office of Performance Management and the Chief
Financial Officer, Agency Financial Report Fiscal Year 2020.
Resulting Increase in Risk of
Improper Payments and Fraud
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GAO-21-577 Paycheck Protection Program
•
Suspicious activity reports. In January 2021, we reported on
potentially suspicious activity in PPP.30 From April through October
2020, financial institutions filed more than 21,000 suspicious activity
reports (SAR) related to PPP with the Financial Crimes Enforcement
Network.31 These reports identified multiple types of potentially
suspicious activity related to PPP, such as indicators of identity theft,
rapid movement of funds, and forgeries. Although the filing of a SAR
does not necessarily mean that fraud has occurred, law enforcement
agencies use these reports to help support investigations, such as
those related to PPP fraud.32 More than 1,400 institutions had filed
SARs related to PPP from April through October 2020, and the
number of SARs filed generally increased during this period.33
•
OIG investigation. In March 2021, the SBA OIG reported that SBA
did not always have sufficient controls in place to detect and prevent
duplicate PPP loans.34 As a result, lenders made more than one PPP
loan disbursement to 4,260 borrowers with the same tax identification
number and borrowers with the same business name and address.
These disbursements totaled about $692 million for loans approved
from April 3 through August 9, 2020 (Round 1 of PPP). The OIG made
four recommendations to SBA, including that SBA review controls for
all PPP loan reviews to ensure duplicate loans are not forgiven and
30GAO-21-265.
31For our January 2021 report, we analyzed aggregate SAR data across U.S. financial
institutions from April through October 2020. These data did not include identifying
information on financial institutions that filed SARs, such as PPP lender status.
32Certain financial institutions are required to file SARs if a transaction involves or
aggregates at least a certain dollar amount in funds or other assets (generally $5,000),
and the institution knows, suspects, or has reason to suspect that the transaction is
designed to evade any BSA requirements or involves money laundering, tax evasion, or
other criminal activities. Law enforcement agencies query Financial Crimes Enforcement
Network systems as part of their investigations of potential financial and other crimes.
33Banks and other financial institutions must file a SAR no later than 30 calendar days
after the date of initial detection of facts that may constitute a basis for filing a SAR. If no
suspect was identified on the date of detection, the financial institution may delay filing a
SAR for an additional 30 calendar days to identify a suspect, but the report must be filed
no more than 60 calendar days after the date of initial detection.
34Small Business Administration, Office of Inspector General, Flash Report: Duplicate
Loans Made Under the Paycheck Protection Program, Report No. 21-09 (Washington,
D.C.: Mar. 15, 2021).
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GAO-21-577 Paycheck Protection Program
not subject to an SBA guarantee, as appropriate.35 SBA agreed with
all of the recommendations. In response, SBA noted it had
implemented enhancements to the loan origination process, which
included data edits and validations that are done before loans are
entered in the SBA loan processing system.
From May 2020 to March 2021, DOJ publicly announced charges in 134
fraud-related cases associated with PPP loans.36 We found that 103 of
the 5,482 PPP lenders issued loans to businesses associated with fraud-
related cases. Specifically, these lenders issued 431 loans (totaling an
estimated $181.6 million) to borrowers who were later charged with bank
fraud, wire fraud, money laundering, or identity theft charges, among
others.37
We also found that five of 103 lenders issued almost 50 percent of the
loans to borrowers charged by DOJ with fraud-related crimes, accounting
for an estimated $93 million. These lenders issued 17 percent of all PPP
loans and included small, medium, and large banks (based on asset
size), and one nonbank lender.38 Further, one of these lenders issued 18
percent of loans in fraud-related cases while issuing two percent of all
PPP loans. Another lender issued 11 percent of loans in fraud-related
cases while issuing 5 percent of all PPP loans. Together, these two
lenders accounted for almost 30 percent of loans in fraud-related cases
and almost 7 percent of all PPP loans.
35More specifically, the SBA OIG recommended that SBA (1) review identified potential
duplicate disbursements for eligibility and take action to recover any improper payments,
(2) review controls related to all PPP loan reviews to ensure that duplicate loans are not
forgiven and not subject to an SBA guarantee, as appropriate, (3) strengthen E-Tran
controls for future PPP-type programs to ensure the controls align with program
requirements and are active at all times, and (4) strengthen controls and guidance for
lenders to ensure lenders meet program requirements for future PPP type programs.
36We identified fraud-related cases from DOJ press releases and other public information,
which may not include all cases pursued by DOJ. Additionally, investigative and
prosecutorial discretion may factor into the cases that are made public. As a result, these
cases may not be representative of all cases pursued by DOJ.
37As noted earlier, there were about 5.1 million PPP loans made from April 2020 to August
2020 (Round 1).
38Using SBA’s lender asset categories, we defined small banks as banks with asset sizes
less than $10 billion, medium banks with assets from $10 billion to $50 billion, and large
banks with assets over $50 billion.
Potential Loan Fraud Patterns
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GAO-21-577 Paycheck Protection Program
PPP lenders involved in fraud-related cases were more likely to be high
volume lenders when compared to all PPP lenders. Although all lenders
lent under expedited timeframes with reduced due diligence
requirements, the lenders’ comparably high volume of loans during these
compressed timeframes might indicate less thorough review processes
and increased fraud risks.39 Lenders that issue a high volume of loans
within a given timeframe could have a higher fraud risk in their portfolios,
as they may have fewer resources per loan to conduct borrower due
diligence compared to a similarly situated lender that made fewer loans.
We found that 72 percent (74 of 103) of the lenders in fraud-related cases
were high volume lenders.40
We reported in March 2021 that SBA did not conduct a comprehensive
fraud risk assessment in alignment with leading practices, and it did not
document its antifraud strategy for PPP (which would outline a strategic
approach to managing fraud risks).41 According to SBA officials, because
of the rapid response required to execute the program, SBA conducted
an informal fraud risk assessment in late spring and early summer of
2020. This assessment included an identification of potential weaknesses
in internal control processes by subject matter experts in the program
office. The agency did not document findings from the assessment.
In February 2021, SBA officials told us the agency would complete a
formal fraud risk assessment, but they did not provide a firm date for
when they would complete such an assessment. Consequently, we
recommended that SBA (1) conduct and document a fraud risk
assessment for PPP and (2) develop a strategy that outlines specific
actions to monitor and manage fraud risks in the program. SBA agreed
with our recommendations. In May 2021, SBA officials told us that the
agency had begun conducting a fraud risk assessment for its CARES Act
39As previously mentioned, the initial PPP appropriation was exhausted within the first 2
weeks of the program.
40We define a high volume lender as a lender that issued more loans than the 75th
percentile of all lenders.
41GAO-21-387. In July 2015, we issued the Fraud Risk Framework, which provides a
comprehensive set of key components and leading practices that serve as a guide for
agency managers to use when developing efforts to combat fraud in a strategic, risk-
based way. Among other things, the framework recommends that agencies plan regular
fraud risk assessments that are tailored to the program, and that these assessments be
conducted when there are changes to the program. GAO, A Framework for Managing
Fraud Risks in Federal Programs, GAO-15-593SP (Washington, D.C.: July 18, 2015).
Initial, Informal SBA
Assessment of Fraud Risks
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GAO-21-577 Paycheck Protection Program
programs, including PPP. Agency officials also told us that they had not
yet designated an anti-fraud entity to lead fraud risk management
activities across SBA, but the agency intends to present a formal proposal
establishing the appropriate anti-fraud entity for consideration and
approval before the end of fiscal year 2021.42
In an effort to prevent potential fraud in PPP and consistent with our June
2020 recommendation, SBA put in place additional controls for first and
second draw loans in Round 2. SBA’s implementation of these controls
initially caused delays for some loans.
•
New (first draw) loans. SBA added front-end compliance checks for
Round 2 applications. During the initial round of PPP, SBA did not
conduct any review of loan or borrower information beyond looking for
duplicate applications before issuing an SBA loan number to the
lender making the loan.43 But during Round 2, SBA used an
automated screening system to identify anomalies or attributes that
may indicate noncompliance with eligibility requirements, fraud, or
abuse after the lender requested a loan number but before the lender
made the loan.44 According to SBA officials and documentation, SBA
compared loan applications against Treasury’s Do Not Pay service
and public records.45 These validation efforts included determining
whether the business was in operation as of February 15, 2020 (a
requirement to be eligible for a PPP loan). If the check identified a
potential issue, a compliance check error message identifying the
issue would be placed on the loan application until the issue was
resolved.
42A leading practice identified in our Fraud Risk Framework is that an agency designate an
entity within its structure to design and oversee fraud risk management activities. The
dedicated entity could be an individual or a team, depending on the needs of the agency.
43SBA issues a loan number when it agrees to guarantee the loan.
44The automated screening process used for new loans in 2021 was a modified version of
the automated screening process used to review loans made in 2020 (as discussed later
in this report).
45Treasury’s Do Not Pay service is an analytics tool that helps federal agencies detect and
prevent improper payments made to vendors, grantees, loan recipients, and beneficiaries.
Agencies can use the service to check multiple data sources to make payment eligibility
decisions.
SBA’s Implementation of
Additional Controls for
Round 2 Delayed Some
Loans
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GAO-21-577 Paycheck Protection Program
•
Second draw loans. Starting in Round 2, small businesses could
receive a second PPP loan if they met certain conditions.46 According
to SBA officials, second draw PPP loans were put through the same
automated screening process used for Round 2 first loans. If this
screening uncovered an issue, a compliance check error message
would be sent to the lender. In addition, if there was a hold code
placed on the first draw loan as a result of SBA’s screening of Round
1 loans, the application for a second draw loan would be delayed until
the issue was resolved, if appropriate. In fall 2020, SBA reviewed all
Round 1 loans using an automated screening process that compared
first loan data against publicly available information and applied
eligibility and fraud detection rules, as discussed below. For instance,
compliance check error messages or hold codes would be issued if
there were discrepancies in the applicant’s name or if the business
was no longer active.
The addition of the compliance checks for Round 2 first and second draw
loans and the hold codes on Round 1 loans created some delays.
According to SBA officials, it takes 24–48 hours to complete these
compliance checks after the lender submits the loan guarantee
application information to SBA. Representatives of the four lender
associations we interviewed told us the additional controls created
confusion among lenders and delays in closing loans, in part because
lenders did not know of the additional controls in advance.47 In addition,
the representatives told us their members were unable to get responses
from SBA when they had questions related to the hold codes.
SBA issued three procedural notices in early 2021 to try to lessen the
delays caused by the hold codes and the compliance check error
46SBA published information on its review of second draw loans in an interim final rule on
January 14, 2021. Business Loan Program Temporary Changes; Paycheck Protection
Program Second Draw Loans, 86 Fed. Reg. 3712 (Jan. 14, 2021).
47In an interim final rule on second draw loans published on January 14, 2021, SBA
included information on how SBA would process applications with an unresolved issue on
the applicant’s first PPP loan. Business Loan Program Temporary Changes; Paycheck
Protection Program Second Draw Loans, 86 Fed. Reg. 3712, 3716-17, 3722 (Jan. 14,
2021).
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GAO-21-577 Paycheck Protection Program
messages.48 Under the updated procedures, lenders could certify that
they obtained, reviewed, and retained in their files sufficient
documentation to resolve certain hold codes or compliance check error
messages.49 Once certified, the application could proceed to the next
stage of loan processing. According to SBA officials, as of March 2021,
SBA was issuing loan numbers for more than 96 percent of new loans
within 48 hours of submission, and there were about 190,000 applications
with outstanding hold codes.
SBA updated its rules and guidance for the loan forgiveness process
several times. As of May 17, 2021, SBA had made forgiveness
determinations on more than 3 million (about 64 percent) Round 1 loans
and had generally made payments most quickly to lenders on smaller
loans. PPP lenders we surveyed cited several challenges they
experienced during the loan forgiveness process. We found SBA has not
developed a process by which PPP lenders can claim the SBA guarantee
if a borrower ceases operations or defaults on the loan. SBA also has not
implemented a CARES Act provision requiring SBA to purchase PPP
loans in advance of loan forgiveness.
48See SBA Procedural Notice No. 5000-20083, SBA Paycheck Protection Platform
Procedures for Addressing Unresolved Issues on Borrower First Draw Loans (Jan. 26,
2021); SBA Procedural Notice No. 5000-20092, Revised SBA Paycheck Protection
Platform Procedures for Addressing Hold Codes on First Draw PPP Loans and
Compliance Check Error Messages on Frist Draw PPP Loans and Second Draw PPP
Loans (Feb. 10, 2021); SBA Procedural Notice No. 5000-808216, Second Notice of
Revised Procedures for Addressing Hold Codes and Compliance Check Error Messages
on PPP Loans (Mar. 29, 2021).
49Some hold codes that lenders could certify and resolve included the applicant having a
potentially disqualifying criminal history or bankruptcy. However, some hold codes could
not be cleared by the lender and must instead be cleared by SBA, based upon additional
documentation provided by the lender. These included hold codes indicating the business
was potentially ineligible because of its size or number of employees.
SBA Has Made More
Than 3 Million Loan
Forgiveness
Determinations, but
Lenders Cited
Challenges with the
Forgiveness Process
and SBA Lacks
Processes for Certain
Unforgiven Loans
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GAO-21-577 Paycheck Protection Program
SBA provided some information on the loan forgiveness process in its first
interim final rule posted on April 2, 2020, and then posted an interim final
rule specifically on loan forgiveness on May 22, 2020.50 The agency has
since provided further information several times by issuing additional
interim final rules, procedural notices, a set of responses to FAQs on loan
forgiveness, and forgiveness applications and instructions. The updates
reflect legislative changes to the program and SBA’s attempts to clarify or
simplify aspects of the process.
For example, in June 2020, SBA issued interim final rules to implement
changes made by the Paycheck Protection Program Flexibility Act.51 The
interim final rules reduced the percentage of payroll expenses necessary
to qualify for full loan forgiveness from 75 percent to 60 percent and
extended the maturity of PPP loans from 2 years to 5 years. In October
2020, SBA issued another interim final rule to simplify the review and
forgiveness processes for loans of $50,000 or less and released a
simplified loan forgiveness application.52 SBA also updated its loan
forgiveness FAQ responses on topics such as which application sole
proprietors should use, eligible payroll expenses, and how borrowers
should calculate reductions in their loan forgiveness amount arising from
reductions in employee salary or hourly wages.
Borrowers are generally eligible for full loan forgiveness of the full
principal amount if (1) they have used at least 60 percent of the loan
proceeds on eligible payroll costs and (2) the balance has been spent on
other eligible expenses, such as business rent payments for leases in
effect before February 15, 2020, mortgage interest payments for
5085 Fed. Reg. 20,811 (Apr. 15, 2020); 85 Fed. Reg. 33,004 (June 1, 2020).
5185 Fed. Reg. 36,997 (June 19, 2020); 85 Fed. Reg. 38,304 (June 26, 2020).
5285 Fed. Reg. 66,214 (Oct. 19, 2020).
Loan Forgiveness Rules
Established a Three-Step
Process
Loan Forgiveness Rules and
Guidance
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GAO-21-577 Paycheck Protection Program
mortgages incurred prior to February 15, 2020, and utility payments.53 In
February 2021, SBA issued an interim final rule that consolidated loan
forgiveness information from prior rules.54
Under SBA rules and guidance, the loan forgiveness process has three
steps. First, the borrower submits the appropriate forgiveness application
and documentation to the lender.55 A borrower may apply any time on or
before the loan maturity date if the borrower has used all the loan funds
for which the borrower requests forgiveness.56 Second, the lender has 60
days from receipt of the application to review and submit its forgiveness
decision (approved in full, approved in part, or denied) to SBA.
Third, according to SBA officials, loans that are not identified for
additional review, as discussed below, are automatically paid by SBA. In
general, SBA must remit the forgiveness amount to the lender within 90
days of that amount being determined. In its interim final rule on loan
forgiveness published in June 2020, SBA stated it will extend this time
frame if the loan or forgiveness application is under SBA review.57 As
shown in figure 3, PPP loan forgiveness will extend into 2022 or beyond
for Round 1 loans.
53The forgiveness amount may be reduced if certain conditions are not met. For example,
payroll costs must account for at least 60 percent of the total PPP forgiveness amount,
salary or wage reduction can generally be no more than 25 percent during the covered
period, and the borrower must generally maintain the average number of full-time
employees during the covered period. Borrowers are allowed to incur these expenses
over a period of up to 24 weeks.
5486 Fed. Reg. 8283 (Feb. 5, 2021).
55SBA has issued three loan forgiveness forms—SBA Forms 3508, 3508EZ, and 3508S.
The 3508EZ and the 3508S are shortened versions of the application for borrowers who
meet specific requirements. Required documentation varies depending on the form the
borrower uses. For each form, the borrower is required to maintain, but not submit, certain
documents. All loans of $2 million or more will undergo a SBA loan review and may
require additional documentation.
56For loans made before June 5, 2020, the maturity is 2 years; however, borrowers and
lenders may mutually agree to extend the maturity of such loans to 5 years. For loans
made on or after June 5, 2020, the maturity is 5 years. As amended by subsequent
legislation, the covered period for loan forgiveness means the period beginning on the
date the loan is originated and ending on a date of the borrower’s choosing between 8 and
24 weeks after the loan’s origination.
5785 Fed. Reg. 33,004, 33,005 (June 1, 2020). SBA and Treasury officials told us they
interpreted the CARES Act requirement to remit funds within 90 days to be subject to
SBA’s review of loans.
Loan Forgiveness Process
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GAO-21-577 Paycheck Protection Program
Figure 3: Paycheck Protection Program (PPP) Loan Forgiveness Process and Timeline for Round 1 Loans
aThe timeline for PPP loan forgiveness may take longer if the borrower waits until after the deferment
period to apply for loan forgiveness.
bSBA’s Loan Review Procedures Interim Final Rule subjected the 90-day remittance deadline to any
SBA review of the loan or loan application. 85 Fed. Reg. 33,010, 33,013 (June 1, 2020).
cA borrower may appeal one of four final SBA loan review decisions to SBA’s Office of Hearings and
Appeals: (1) the borrower was ineligible for the loan, (2) the borrower was ineligible for the loan
amount received or used the loan proceeds for unauthorized uses, (3) the borrower is not eligible for
loan forgiveness in the amount determined by the lender, or (4) the borrower is ineligible for PPP loan
forgiveness in any amount when the lender has issued a full denial decision to SBA.
As of May 17, 2021, SBA had made loan forgiveness determinations on
about 3.3 million loans (64 percent of the 5.1 million loans made during
Round 1).58 As shown in figure 4, of these 3.3 million applications, about
3.1 million loans (94 percent) received full forgiveness, about 78,000
loans (2 percent) received partial forgiveness, and about 137,000 loans (4
percent) received no forgiveness. As of that time, SBA had not yet
received loan forgiveness decisions from lenders for about 1.8 million
loans.59
58According to SBA data, as of May 24, 2021, lenders had generally submitted and SBA
forgave between $5 billion and $15 billion in loan forgiveness applications each week from
November 2020 through May 2021.
59Borrowers may not have submitted loan forgiveness applications to their lenders for the
outstanding loans.
SBA Has Made a
Forgiveness
Determination on 64
Percent of Round 1 Loans,
and Generally Paid
Smaller Loans Quickest
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GAO-21-577 Paycheck Protection Program
Figure 4: SBA’s Loan Forgiveness Determinations on PPP Loans Made during
Round 1, as of May 17, 2021
The following are characteristics of the lenders that submitted the
approximately 3.3 million loan forgiveness decisions on which SBA had
acted, as of May 17, 2021:
•
About 49 percent of the loan forgiveness decisions were submitted by
lenders with less than $10 billion in assets.
•
Almost all (about 96 percent) of the loan forgiveness decisions were
submitted by banks and credit unions.
•
About 80 percent were submitted by lenders with a prior relationship
with SBA.
Under the CARES Act, SBA generally must remit any loan forgiveness
funds to the lender within 90 days of the date on which the forgiveness
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GAO-21-577 Paycheck Protection Program
amount is determined.60 Our analysis of SBA data found that actual times
varied some based on loan size (see fig. 5). We measured the time from
the date the lender submitted its decision to SBA to the date SBA
remitted payment to the lender. Overall, it took SBA an average of 13
days from the time it received a forgiveness decision to remit payment to
the lender. But as of May 17, 2021, SBA had exceeded a processing time
of 90 days on more than 63,000 loans (about 1.9 percent of submitted
loan forgiveness decisions). SBA completed its determination and
remitted loan forgiveness payments, on average, in 23 days or less for
loans of $1 million or less. However, this process took an average of 181
days for loans of more than $2 million, which receive additional reviews.61
60SBA’s Loan Review Procedures Interim Final Rule subjected the 90-day remittance
deadline to any SBA review of the loan or loan application. 85 Fed. Reg. 33,010, 33,013
(June 1, 2020).
61According to Treasury officials, it was prudent for SBA to take additional time to review
the largest loans given the additional risk associated with these loans.
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Figure 5: Range and Average Number of Days by Forgiveness Amount for SBA to
Process PPP Forgiveness Payments to Lenders, as of May 17, 2021
Note: We limited our analysis to lender decisions on Round 1 PPP loans for which SBA had made a
determination.
We found that SBA generally processed and remitted payments for
smaller sized loans more quickly than it did for the largest loans. For
example, of the loans that SBA processed in 5 days or less, 68 percent
were loans with values of $50,000 or less (see table 2). In contrast, it took
SBA at least 91 days to review almost all of the forgiveness decisions for
loans of at least $2 million.62 Processing smaller forgiveness applications
more quickly seems to be in line with decisions SBA made to expedite the
review process. In October 2020, SBA issued an interim final rule
62According to SBA officials, SBA did not finalize the procedures for reviews of loans of $2
million or more until January 2021.
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GAO-21-577 Paycheck Protection Program
generally allowing borrowers of a PPP loan of $50,000 or less to use a
simplified loan forgiveness process and application form.63 In addition, as
discussed more below, contractor officials told us SBA expedited the
review process by, where appropriate, removing low-risk alerts connected
to loans under $150,000 that may have delayed loan forgiveness
processing.
Table 2: SBA Processing Times for PPP Loan Forgiveness Payments by Forgiveness Amount, as of May 17, 2021
Forgiveness
amount
(dollars)
Number and
percentage
processed in 0–5
days
Number and
percentage
processed in
6–10 days
Number and
percentage
processed in
11–50 days
Number and
percentage
processed in
51–90 days
Number and
percentage
processed in
91–200 days
Number and
percentage
processed in
more than 200
days
≥ 2,000,000
0 (0%)
0 (0%)
8 (0%)
3 (0%)
607 (1%)
220 (29%)
≥ 1,000,000 and <
2,000,000
8,178 (1)
11,459 (1)
5,541 (1)
3,219 (3)
3,174 (5)
69 (9)
≥ 500,000 and <
1,000,000
19,086 (2)
26,504 (2)
11,827 (2)
6,001 (4)
4,706 (8)
73 (10)
≥ 150,000 and <
500,000
83,409 (8)
115,708 (8)
46,766 (10)
22,663 (16)
17,131 (27)
174 (23)
> 50,000 and <
150,000
248,113 (22)
305,022 (22)
81,135 (17)
25,961 (19)
7,612 (12)
60 (8)
≤ 50,000
745,241 (68)
928,073 (67)
339,234 (70)
81,682 (59)
29,271 (47)
171 (22)
Total
1,104,027
(100%)
1,386,766
(100%)
484,511
(100%)
139,529
(100%)
62,501
(100%)
767
(100%)
Source: GAO analysis of Small Business Administration (SBA) Paycheck Protection Program (PPP) loan forgiveness data. | GAO-21-577
Notes: We limited our analysis to lender decisions on Round 1 PPP loans for which SBA had made a
determination. We excluded 136,767 PPP loans that received no forgiveness and 137 loans with
missing or incomplete information from our analysis. Percentages are determined by column and may
not add to 100 due to rounding.
According to SBA officials, there are several reasons why SBA may have
exceeded 90 days to make a forgiveness determination. First, officials
said SBA did not start conducting reviews of loans less than $2 million
until early November 2020 and did not start conducting reviews of loans
of $2 million or more until January 2021, even though some lenders had
begun submitting forgiveness decisions in August 2020.64 We found that it
63Business Loan Program Temporary Changes: Paycheck Protection Program—Additional
Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules, 85 Fed.
Reg. 66,214 (Oct. 19, 2020).
64According to SBA officials, SBA began making forgiveness payments in early October
2020 on loans that did not undergo a review.
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GAO-21-577 Paycheck Protection Program
took SBA an average of 75 days to process loan forgiveness decisions
received in August 2020 (see fig. 6). In contrast, it took SBA an average
of 5 days for decisions received in April 2021. Second, it took time for
SBA to approve additional staff for the contractor so that it could start
performing the initial review of lender decisions. Finally, some lenders
submitted incomplete documentation, and SBA had to wait for additional
documentation to be provided before reviewing the application. SBA
officials told us they were putting together a plan to address all loans
exceeding 90 days, with the goal of addressing the remaining loans within
45 days.
Figure 6: Range and Average Number of Days, by Month Submitted, for SBA to
Process PPP Forgiveness Payments to Lenders, as of May 17, 2021
Note: We limited our analysis to lender decisions on Round 1 PPP loans for which SBA had made a
determination.
Our analysis of SBA data found that about two-thirds of all borrowers (68
percent) that had applied for loan forgiveness used the simplest loan
forgiveness application (SBA Form 3508S), as of May 17, 2021 (see fig.
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GAO-21-577 Paycheck Protection Program
7).65 In contrast, about 4 percent of businesses had used the most
complex form (SBA Form 3508). This is consistent with the fact that most
loan forgiveness applications received by SBA were for smaller loans
(which can use the simpler form).
65On October 8, 2020, exercising their authority under the CARES Act to grant de minimis
exemptions for certain PPP forgiveness requirements, SBA and Treasury posted an
interim final rule that simplified the forgiveness and loan review processes for most PPP
loans of $50,000 or less. In conjunction with the rule, SBA released a new form (SBA
Form 3508S) that requires fewer calculations and less documentation for eligible
borrowers. SBA had previously released two other loan forgiveness applications—a long
form (SBA Form 3508) and an abbreviated form (SBA Form 3508EZ). The 3508S is
shorter than the 3508EZ. The form the borrower may use depends on factors such as the
amount borrowed and whether the business reduced the number of employees or their
salaries. The Consolidated Appropriations Act, 2021, mandated a simplified forgiveness
application for loans of $150,000 or less. In January 2021, SBA modified the SBA Form
3508S to allow borrowers to use the form for loans of $150,000 or less and to remove the
requirement to provide supporting documentation, per the act’s changes.
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GAO-21-577 Paycheck Protection Program
Figure 7: PPP Loan Forgiveness Decisions Submitted to SBA by Form Used and Forgiveness Amount, as of May 17, 2021
Note: We limited our analysis to lender decisions on Round 1 PPP loans for which SBA had made a
determination.
The business types that received the most PPP loans had also submitted
the most loan forgiveness applications, as of May 17, 2021. The largest
percentage of forgiveness applications on which lenders had made
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GAO-21-577 Paycheck Protection Program
decisions were from corporations (30 percent), limited liability
corporations (29 percent), and sole proprietorships (15 percent).
However, less than two-thirds of borrowers in each of these business
types had applied for loan forgiveness. In contrast, about 75 percent of
nonprofit borrowers had applied for loan forgiveness.
Further, the largest percentage of forgiveness applications received came
from businesses with the smallest number of employees. Our analysis
found that, as of May 17, 2021, about 77 percent of the forgiveness
applications on which lenders had made decisions came from businesses
with 10 or fewer employees (see fig. 8). In contrast, about 2 percent of
loan forgiveness applications came from businesses with more than 100
employees.
Figure 8: PPP Loan Forgiveness Decisions Submitted to SBA, by Number of
Employees, as of May 17, 2021
Notes: We limited our analysis to lender decisions on Round 1 PPP loans for which SBA had made a
determination. This figure excludes 204 loans with missing or incomplete information. Percentages
may not add to 100 due to rounding.
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GAO-21-577 Paycheck Protection Program
Our survey of PPP lenders, which closed in mid-April 2021, identified
several challenges they had experienced during the loan forgiveness
process, such as changing rules and guidance and higher than expected
demands on their resources. Lenders also cited borrowers’ lack of
understanding of the process and borrowers submitting incomplete
applications.
Decentralized and changing rules and guidance. The majority of
lenders we surveyed found SBA’s guidance on the loan forgiveness
process to be helpful; however, lenders cited changes to rules and
guidance and the lack of a central guidance document as challenges.66
We estimate that 58 percent of lenders found the information SBA
provided about the loan forgiveness process to be very or moderately
helpful.67 In response to an open-ended question, some lenders stated
that the loan forgiveness platform was self-explanatory and easy to
follow, and they received information in a timelier manner than during the
loan application phase.
However, we estimate that 69 percent of lenders found changes in SBA’s
program rules and guidance on the loan forgiveness process (e.g., interim
final rules, FAQs) to be very or moderately challenging during that
process.68 In addition, we estimate that 58 percent of lenders found the
lack of a central SBA document containing program rules and guidance to
be very or moderately challenging during the loan forgiveness process.69
For example, lenders and borrowers often could not readily determine
where to find the information they needed and had to search through
multiple documents to obtain answers to questions. SBA partially
66In July 2021, we reported that as of May 2021, SBA had not prominently and
strategically placed information on its website about the tax implications of its PPP
forgiveness application. This information, particularly for borrowers who do not work with
tax professionals, could help borrowers make decisions that would allow them to
maximize the Employee Retention Credit. The Employee Retention Credit is a refundable
50 percent tax credit of up to $10,000 in wages paid by an eligible employer whose
business has been financially affected by COVID-19. As a result of our work, SBA worked
with Treasury and posted Internal Revenue Service guidance on SBA’s loan forgiveness
webpage on the tax implications of payroll cost allocations to PPP loan forgiveness
applicants. GAO-21-551.
67The 95 percent confidence interval for this estimate is (55, 62). Survey respondents
were asked to rate the helpfulness of guidance using the following scale: very helpful,
moderately helpful, somewhat helpful, not helpful, and do not know.
68The 95 percent confidence interval for this estimate is (65, 72).
69The 95 percent confidence interval for this estimate is (55, 62).
Survey Shows Lenders
Cited Challenges with the
Loan Forgiveness Process
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GAO-21-577 Paycheck Protection Program
addressed this problem through its February 2021 interim final rule, which
consolidated prior rules on the loan forgiveness process.70
Resources needed for the process were greater than expected.
Some lenders who responded to our survey indicated that they needed
more resources than they expected to make loan forgiveness decisions.
We estimate that 38 percent of lenders found the actual level of resources
required for making loan forgiveness decisions was higher or much higher
than expected.71 Our lender survey showed that it most commonly took
survey respondents between 1 and 3 staff hours to review a borrower’s
loan forgiveness application and related documentation for SBA Forms
3508 and 3508EZ.72
In response to an open-ended question on our survey, lenders cited
several reasons for needing additional resources, such as to address
documentation requirements, process forgiveness applications under
changing and unclear guidance on loan forgiveness, and work with
borrowers to complete the forgiveness applications. For example, one
lender said they believed loans pulled for review by SBA are held to a
higher documentation standard than was required at application. Another
lender stated it took much longer than expected to process forgiveness
applications as the rules continued to change. A third lender said the lack
of a centralized source of accurate information and the constantly
changing rules and guidance increased draws on its resources. A fourth
lender noted that lenders’ responsibilities continually intensified
throughout the PPP process.
70Business Loan Program Temporary Changes; Paycheck Protection Program—Loan
Forgiveness Requirements and Loan Review Procedures as Amended by Economic Aid
Act, 86 Fed. Reg. 8283 (Feb. 5, 2021).
71The 95 percent confidence interval for this estimate is (34, 41). Survey respondents
were asked to rate the actual level of resources required using the following scale: much
higher than expected, higher than expected, as expected, lower than expected, much
lower than expected, and do not know.
72Forty-two percent of survey respondents (lenders) indicated it took 1–3 staff hours to
review Form 3508 (the most extensive form) and 45 percent responded that it took them
1–3 staff hours to review Form 3508EZ. The 95 percent confidence interval for these
estimates are (38, 45) for Form 3508 and (41, 48) for Form 3508EZ. In contrast, 63
percent of lenders reported they spent less than 1 hour reviewing applications submitted
using Form 3508S (the simplest form) and related documentation. The 95 percent
confidence interval for this estimate is (60, 66).
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GAO-21-577 Paycheck Protection Program
Borrowers’ lack of understanding of loan forgiveness process. We
estimate that 61 percent of lenders found borrowers’ lack of
understanding of the loan forgiveness process either very or moderately
challenging.73 Similarly, we estimate 43 percent of lenders found that
incorrect calculations submitted by borrowers, such as inclusion of
ineligible expenses, were either very or moderately challenging.74
In response to an open-ended question on our survey, one lender stated
that the forms were far too detailed and confusing for borrowers, often
forcing them to incur accounting expenses to complete them. Some of the
confusion may have been caused by the various rules and guidance SBA
issued. For example, one respondent stated that while the forgiveness
FAQs and interim final rules were timelier than the initial PPP application
information, SBA kept changing the loan forgiveness information and
applications. According to the respondent, these changes made it
complicated to coach clients on the information needed to verify
information such as the number of employees.
Borrowers providing incomplete forgiveness application forms and
insufficient documentation. An estimated 51 percent of lenders stated
that receiving incomplete forgiveness applications was very or moderately
challenging.75 Similarly, we estimate that 56 percent of lenders found that
insufficient documentation from borrowers was very or moderately
challenging during the loan forgiveness process.76
As of early July 2021, SBA had not issued guidance on how lenders can
ask SBA to honor its guarantee by purchasing the loan if the borrower’s
business ceases operations or the borrower defaults. While SBA has a
process for these types of issues for its 7(a) program, representatives of
three lender associations told us PPP needs more targeted guidance, as
it is a fundamentally different program.
Currently, SBA does not allow lenders to ask SBA to honor its guarantee
for PPP loans until a borrower defaults on a payment on the loan. This
applies even in cases in which a lender has evidence that a borrower has
73The 95 percent confidence interval for this estimate is (58, 65).
74The 95 percent confidence interval for this estimate is (40, 46).
75The 95 percent confidence interval for this estimate is (47, 54).
76The 95 percent confidence interval for this estimate is (53, 60).
SBA Has Not Developed a
Guarantee Purchase
Process for PPP Loans
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GAO-21-577 Paycheck Protection Program
filed for bankruptcy or no longer exists and is unlikely to request
forgiveness before the end of the borrower’s 10-month deferral period for
the loan.77
According to SBA guidance, PPP lenders must continue servicing loans
for which a loan forgiveness application has not been filed and, for loans
that are not fully forgiven, until the borrower repays the outstanding
portion of the loan.78 Because borrowers who do not receive full loan
forgiveness may keep their PPP loan for the full loan term (up to 5 years),
at a 1 percent interest rate, ongoing loan servicing for PPP loans may be
costly to lenders. Representatives from two lender associations we
interviewed expressed concern this will force lenders to hold some loans
made to businesses no longer in operation until October 2021 or later.79
OMB Circular A-129 states that agencies shall ensure that statutory and
regulatory requirements set forth in applicable standards and regulations
are incorporated into agency regulations, policies, and procedure for
credit programs and debt collection activities. However, SBA has not yet
developed a process for lenders to claim the PPP guarantee. According
to SBA officials, in early May 2021, SBA had drafted a notice outlining the
PPP guarantee purchase process, but the notice had not been reviewed
and finalized. The officials noted that PPP loans are significantly different
than loans made under the regular 7(a) program and therefore needed a
separate set of procedures. The officials were uncertain when the
77The Opportunity Insights Economic Tracker estimated that, as of June 2, 2021, the
number of small businesses open in the U.S. had decreased by 38.9 percent compared to
January 2020. This site updates data initially reported in a November 2020 study. See Raj
Chetty et al., The Economic Impacts of COVID-19: Evidence from a New Public Database
Built Using Private Sector Data (November 2020). The Paycheck Protection Flexibility Act
of 2020 extended the deferral period for loan payments on the principal, interest, and fees
on PPP loans to either (1) the date that SBA remits the borrower’s loan forgiveness
amount to the lender or (2) 10 months after the end of the borrower’s covered period if the
borrower does not apply for loan forgiveness. Pub. L. No. 116-142, § 3, 134 Stat. 641,
642-43.
78PPP loans may be for 2 or 5 years, depending in part, on when they were made.
79Although lenders can sell their PPP loans on the secondary market, representatives of
two lender associations with whom we spoke said such opportunities are limited because
investors are not interested in purchasing loans at a 1 percent interest rate. SBA guidance
states that the purchasing lender obtains all servicing rights and will be responsible for
servicing actions and forgiveness and be the party eligible for the guaranteed purchase of
a PPP loan.
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GAO-21-577 Paycheck Protection Program
procedures would be finalized and issued but said that doing so was a
management priority.
Consequently, until SBA finalizes the guarantee purchase process, lender
capital will remain tied up until the guarantee is paid as those borrowers
who have gone bankrupt or out of business will be unlikely to repay the
loans. Because PPP lenders will have less available capital, they will be
less likely to make non-PPP loans to small businesses. In addition, the
ongoing servicing costs may exceed the fees lenders receive through the
program.
As of July 2021, SBA had not implemented the CARES Act provision
requiring advance purchase of PPP loans, although shortly after the
program started the agency indicated it would do so. The CARES Act
requires SBA to make an advance purchase for the expected forgiveness
amount of a PPP loan within 15 days of receiving a report on the
expected forgiveness amount from a lender, and outlines a process for
lenders to initiate the advance purchase.80 The CARES Act also states
that SBA shall purchase the expected forgiveness amount as if the
amount were the principal amount of a loan guaranteed under its 7(a)
program. The act first requires the PPP lender to submit a report to SBA
with the expected forgiveness amount up to 100 percent of the principal
amount for a covered loan, or pool of loans, and SBA is to provide an
advance purchase of those loans.81
SBA took initial steps to implement this provision in the first PPP interim
final rule published in April 2020. In the rule, SBA stated that a lender
may request that SBA purchase an expected forgiveness amount at the
80Pub. L. No. 116-136, § 1106(c)(4), 134 Stat. 281, 298 (2020) (codified at 15 U.S.C. §
636m(c)(4)).The CARES Act defines “expected forgiveness amount” as the amount of
principal that a lender reasonably expects a borrower to expend during the covered period
on the sum of any payroll costs, covered mortgage interest, covered rent, and covered
utility payments. Pub. L. No. 116-136, § 1106(a)(7), 134 Stat. 281, 297-298 (2020)
(codified as amended at 15 U.S.C. § 636m(a)(11)). This definition was later expanded to
also include covered operations expenditures, property damage costs, supplier costs, and
worker protection expenditures.
81The CARES Act specifies that, at the discretion of the SBA Administrator, third-party
participants in the secondary market may also report expected forgiveness amounts to
SBA.
SBA Does Not Allow
Advance Purchase of PPP
Loans
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GAO-21-577 Paycheck Protection Program
end of week 7 of the loan’s covered period.82 The first interim final rule
specified that the lender submit a report requesting advance purchase
with the expected forgiveness amount to SBA, along with required forms
and supporting documentation.83 In an interim final rule on loan review
procedures released in May 2020, SBA stated it would issue additional
procedures for advance purchase of PPP loans.84 Although SBA issued
several additional interim final rules in 2020, it did not provide additional
guidance related to advance purchases. On January 14, 2021, SBA
published a new interim final rule that modified the initial PPP interim final
rule and included a footnote stating that advance purchases are not
available under PPP.85
According to SBA officials, as of July 2021, SBA did not plan to
implement this provision. They stated that SBA and Treasury officials
decided in 2020 not to implement the provision because they believed
that the Board of Governors of the Federal Reserve System’s (Federal
Reserve) PPP Liquidity Facility was a better vehicle to provide lender
liquidity.86 Further, SBA officials stated the program is now over 1 year old
82The interim final rule states that at the time the SBA Administrator, in consultation with
the Secretary of the Treasury, determined that 7 weeks was the minimum period of time
necessary for a lender to reasonably determine the expected forgiveness amount for a
PPP loan or pool of PPP loans because PPP was a new program and of the likelihood
that many borrowers would be new clients of the lender. Business Loan Program
Temporary Changes; Paycheck Protection Program, 85 Fed. Reg. 20,811, 20,816 (Apr.
15, 2020). Under the CARES Act, the “covered period” during which borrowers can spend
forgivable expenses was originally specified as the 8-week period beginning on the date of
the origination of the loan. As amended by subsequent legislation, the covered period for
loan forgiveness means the period beginning on the date the loan is originated and ending
on a date of the borrower’s choosing between 8 and 24 weeks after the loan’s origination.
83The first interim final rule also required lenders to include a detailed narrative explaining
the assumptions used in determining the expected forgiveness amount and the basis for
those assumptions, along with possible alternative assumptions considered and any
additional information SBA might require to determine whether the amount is reasonable.
84Business Loan Program Temporary Changes; Paycheck Protection Program—SBA
Loan Review Procedures and Related Borrower and Lender Responsibilities, 85 Fed.
Reg. 33,010, 33,013 (June 1, 2020).
85Business Loan Program Temporary Changes; Paycheck Protection Program as
Amended by Economic Aid Act, 86 Fed. Reg. 3692, 3708, n. 101 (Jan. 14, 2021).
86The PPP Liquidity Facility was launched on April 16, 2020, and allowed Federal Reserve
Banks to lend to institutions eligible to originate PPP loans and take the PPP loans as
collateral. The facilities are authorized under section 13(3) of the Federal Reserve Act and
approved by the Secretary of the Treasury. According to Federal Reserve reporting, as of
April 30, 2021, the total outstanding amount of advances under the facility was $73.9
billion.
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GAO-21-577 Paycheck Protection Program
and questioned whether a rule implementing the provision was still
necessary. However, SBA has not requested that Congress repeal the
advance purchase requirement. Without a change in law, SBA has not
fully implemented all CARES Act requirements for PPP. Failing to
implement this requirement may undermine the intent of this CARES Act
provision.
SBA and its contractor began conducting loan eligibility and loan
forgiveness reviews for Round 1 applications in August 2020. SBA
requires that issues identified during the reviews be resolved before a
borrower receives a second PPP loan or SBA remits loan forgiveness
funds to the lender.
An SBA contractor (loan review contractor) conducts automated and
manual loan reviews to test for compliance with program requirements
and evaluate the accuracy of PPP borrowers’ self-certifications (see fig.
9). The contractor’s loan review process consists of up to three
consecutive steps: automated screening, triage reviews, and level 2
reviews. At the end of each step, the loan review contractor recommends
no further action—if no potential issues are identified—or moves the loan
to the next level of review. Before loan decisions are referred to SBA, a
supervisor reviews analysts’ decisions for each loan for quality assurance
purposes. In addition to loan-level reviews, the loan review contractor
conducts expedited reviews to more efficiently close loans flagged during
automated screening and conducts aggregate reviews across all loans to
identify potential fraud schemes.
SBA Implemented a
Loan Review Process
but Has Not
Documented Certain
Review Steps or
Developed a Process
to Improve
Communication with
Lenders
SBA Contractor Performs
Multiple Initial Loan
Reviews
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GAO-21-577 Paycheck Protection Program
Figure 9: Contractor Loan Eligibility Review Process for the Paycheck Protection
Program
Automated screening. The loan review contractor first screens all PPP
loans using an automated rules-based tool. The tool compares PPP loan
data against publicly available information and applies eligibility and fraud
detection rules to identify anomalies or attributes that may indicate
noncompliance with eligibility requirements, fraud, or abuse. For example,
the tool flags loans made to a borrower in active bankruptcy or one who
used the tax identification number of a deceased person.
The loan review contractor conducted automated screenings for the
approximately 5.1 million Round 1 PPP loans in August and early
September 2020. Of those loans, about 2 million received at least one
alert through automated screening and were flagged for additional review.
According to SBA officials, the automated screening rules are
intentionally broad to capture potentially noncompliant loans, because
limited controls were in place during loan approval. Additionally, SBA
flagged approximately 280,000 loans for manual review based on general
referrals, fraud tips, media reports, whistleblower reports, and information
received from the SBA OIG and DOJ. As of April 21, 2021, the loan
review contractor had escalated approximately 2.3 million loans for
manual review.
Triage reviews. The first step in the manual review process is a triage
review, which is intended to identify loans of less than $2 million that can
be easily resolved by determining that an automated screening alert was
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GAO-21-577 Paycheck Protection Program
invalid, according to loan review contractor officials.87 In a triage review,
an analyst conducts an internet search and matches public data records
to information in the borrower’s application. Triage reviews focus on the
resolution of common data issues such as data entry errors, partial data
entry, or issues arising from borrowers with common names.
As of May 17, 2021, the loan review contractor had conducted triage
reviews for 42,205 loans, according to SBA. Of those, 33,664 were
referred to SBA for no further action and 11,541 were escalated for level
2 reviews. About 26,000 loans were pending triage review.
Level 2 reviews. The loan review contractor conducts a level 2 review of
all loans that were escalated from the triage review and all loans of $2
million or greater to determine borrower eligibility and the presence of
fraud or abuse. Level 2 analysts study alerts triggered during automated
screening, triage review analysis, and loan application and forgiveness
information submitted by the borrower. These analysts conduct open
source research to verify the existence and good standing of the business
and conduct a risk indicator analysis, which compares alerts from the
automated review to targeted in-depth research, to corroborate or resolve
the alert. Level 2 analysts also may request more documentation from a
borrower if they cannot determine eligibility based on loan application
documentation or forgiveness submissions.
As of May 17, 2021, the loan review contractor had completed 11,541
level 2 reviews. Of those, the loan review contractor referred 10,325 loans
to SBA for no further action and referred 1,216 to SBA for further action.
About 35,000 loans were pending level 2 review.
Quality assurance process. The loan review contractor implemented a
quality assurance process for its loan reviews. Before loans are referred
to SBA (for further action or no further action), a supervisor reviews the
decisions made by the triage analyst and level 2 analyst for each loan to
determine whether the analysts followed established procedures and
whether the supervisor agrees with the analysts’ decisions. Additionally, a
quality assurance team reviews and provides feedback on the automated
screening, triage review, and level 2 review processes on an ongoing
basis.
87The loan review contractor conducts a level 2 review of all loans of $2 million or greater.
Therefore, none of these loans receive a triage review.
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GAO-21-577 Paycheck Protection Program
Expedited reviews. After conducting about 21,000 manual reviews, the
loan review contractor implemented two processes—data analytics and
machine learning—that helped clear 1.9 million of the 2.3 million flagged
loans that posed minimal risk of noncompliance with eligibility
requirements, fraud, or abuse (see fig. 10). First, the loan review
contractor used data analytics to help clear three batches of loans. The
contractor proposed clearing (that is, referred to SBA for no further action)
approximately 855,000 loans using data analytics to identify groups of
loans with similar characteristics that received alerts that the loan review
contractor considered lower risk. For example, a loan might receive an
alert because the borrower did not have an online presence, such as a
website. However, a lack of online presence is common for very small
businesses. Therefore, the loan review contractor proposed clearing
small businesses of a certain size that received an alert only for this
reason. For loans of $150,000 or less, the loan review contractor
proposed clearing another 945,000 loans using criteria such as loans
having five or fewer alerts or not having mismatched or unverified
information. The contractor also proposed clearing 4,250 loans of $2
million or more based on data analytics.
Figure 10: Results of SBA’s Expedited Review Process for the Paycheck Protection
Program, as of April 2021
aThe contractor’s automated screening process flagged approximately 1.9 million loans, and SBA
flagged an additional approximately 280,000 loans based on general referrals, fraud tips, media
reports, or whistleblower reports.
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GAO-21-577 Paycheck Protection Program
bBased on data analytics, the contractor helped clear approximately 855,000 loans with low risk flags,
approximately 945,000 loans of $150,000 or less, and approximately 4,250 loans of $2 million or
more. Through machine learning, the contractor helped clear an additional approximately 92,000
loans.
cThe loan review contractor starts manual reviews with a triage review of loans less than $2 million.
After the triage review, loans are either referred to SBA for no further action or escalated to level 2
review. The loan review contractor conducts level 2 reviews of loans escalated from triage review and
all loans of $2 million or more. After the level 2 review, loans are referred to SBA either for no further
action or for further action.
Second, the loan review contractor used machine learning to clear
batches of loans flagged during automated screening. In this process, the
loan review contractor used historical data from completed manual
reviews to teach a computer model to categorize new data and identify
loans that are likely to receive a recommendation of no further action.
Through this machine learning process, the loan review contractor
referred approximately 92,000 loans to SBA for no further action without
conducting a manual review.
Aggregate review. The loan review contractor also plans to analyze all
loans in the aggregate to identify and analyze relationships across loans,
borrowers, and lenders, seeking to identify potentially suspicious
relationships and activities. The loan review contractor stated this
aggregate review is intended to uncover organized, systemic fraud and
large fraud schemes. For example, the aggregate review could identify
commonalities among borrowers, such as multiple borrowers with the
same phone number or address. If the loan review contractor uncovers
potential fraud schemes, it plans to notify SBA. According to SBA officials,
SBA would then notify the SBA OIG for further investigation.
Loan review contractor officials said they began conducting aggregated
reviews in March 2021, after they had conducted a critical mass of
automated and manual loan reviews, which formed the basis of their
aggregate review approach. The loan review contractor plans to use
trends identified through the aggregate review to create and further refine
rules for future automated screening and manual reviews.
As of July 2021, SBA had not yet finalized procedures for elevated
reviews of some borrower eligibility and loan forgiveness decisions (see
fig. 11). After the loan review contractor submits its proposed loan
eligibility decisions, SBA conducts manual reviews of certain loans to
determine borrower eligibility and loan forgiveness entitlement and
amount. If, according to SBA officials, SBA determines during the loan
forgiveness review that the borrower is ineligible for a PPP loan or
ineligible for the loan amount or the loan forgiveness amount claimed by
SBA Has Not Yet
Completed Procedures for
Some Reviews of
Borrower Eligibility and
Loan Forgiveness
Decisions
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GAO-21-577 Paycheck Protection Program
the borrower, SBA staff may escalate loans for a higher authority review.
When SBA makes a final loan forgiveness determination, it notifies the
lender of the determination. If SBA determines the borrower is entitled to
loan forgiveness, in whole or in part, SBA remits the appropriate loan
forgiveness amount to the lender.
Figure 11: SBA Loan Eligibility and Forgiveness Review Process for the Paycheck
Protection Program
Loan eligibility reviews. SBA conducts manual reviews for fraud, abuse,
or noncompliance with eligibility requirements for
•
all loans of $2 million or greater,
•
all loans of less than $2 million for which the loan review contractor
recommended further action, and
•
a sample of loans of less than $2 million for which the loan review
contractor recommended no further action.
During a loan eligibility review, an SBA analyst reviews the report
submitted by the loan review contractor, if applicable, and borrower
documentation. If the review indicates potential noncompliance with
eligibility requirements, the analyst can escalate the loan to a higher
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GAO-21-577 Paycheck Protection Program
authority review. After SBA determines a borrower’s loan eligibility, it may
notify the lender of its loan eligibility determination or may continue with a
forgiveness review if a forgiveness decision has been submitted by the
lender. If a lender has not yet submitted a forgiveness decision, SBA will
notify the lender of its loan eligibility determination.
Loan forgiveness reviews. SBA reviews the loan forgiveness
applications for
•
all loans of $2 million or greater;
•
a sample of loans below $2 million;
•
at SBA’s discretion, loans below $2 million for which the loan review
contractor recommended further action; and
•
at SBA’s discretion, loans below $2 million for which the lender
submitted a decision to SBA denying forgiveness for the full loan
amount.88
During loan forgiveness reviews, an analyst reviews loan forgiveness
applications to confirm borrower eligibility; confirm the borrower correctly
calculated the loan amount, forgiveness amount, and covered period;
review eligible expenditures; and confirm the borrower submitted the
correct loan forgiveness form. If employment and payroll information is
not fully supported by borrower-submitted documentation, SBA can
request additional documentation through the lender. However, if
borrower-submitted documentation remains insufficient, the analyst can
recommend denial and escalate the loan to a higher authority review.
Committee reviews. Loans where the borrower was determined to be
ineligible to participate in PPP may be referred to a committee of senior
managers in SBA’s Office of Capital Access to make a final decision. In
some cases, the Associate Administrator for the Office of Capital Access
may make the final loan review decision. As of May 6, 2021, no loans had
been referred to this committee. SBA officials said they were revising a
document that establishes the criteria for escalating loans to the
committee.
88A PPP borrower can appeal SBA’s final loan review decision within 30 days of receiving
notification of the decision. SBA posted an interim final rule governing appeals of its PPP
loan review decisions in August 2020. Appeals of Loan Review Decisions Under the
Paycheck Protection Program, 85 Fed. Reg. 52,883 (Aug. 27, 2020).
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GAO-21-577 Paycheck Protection Program
As of July 2021, SBA had not documented its policies or procedures for
conducting higher authority reviews or committee reviews, aside from
documents that establish the criteria for escalating loans to the
committee. SBA officials stated that they had not yet documented these
policies or procedures because they were still finalizing the process for
these reviews. They did not provide time frames for finalizing the process
or completing the policies and procedures. According to federal internal
control standards, management should implement control activities
through policies. Management is to document in policies the control
responsibilities of the organization, including through day-to-day
procedures, timing of control execution, and follow-up actions to be
taken.89
Until SBA finalizes and documents policies and procedures for conducting
senior-level reviews, there could be increased risk of SBA making
inconsistent or incorrect determinations in reviewing borrower eligibility
and loan forgiveness applications, including potentially denying
forgiveness to eligible borrowers.
Quality control reviews. As a quality assurance measure, SBA hired a
different contractor (quality control contractor) to conduct quality control
reviews of 6,500 loans. The quality control contractor is to independently
review whether the loan review process was executed as designed and
whether the evidence in the loan review file sufficiently supported SBA’s
loan review decision.
According to the contractor, the quality control reviews focus on areas
such as borrower eligibility, loan size, the loan review contractor’s referral
of loans to SBA, and the loan forgiveness rules. SBA officials said that, as
of May 14, 2021, the quality control contractor had reviewed five loans,
two of which had findings indicating that the analyst had not correctly
conducted the reviews. In one case, the contractor found that a loan
application document was not included in the loan file. In the second
case, the contractor found the analyst determined that while the borrower
may have been eligible for an exemption that would have prevented its
loan forgiveness amount from being reduced, there was not any evidence
89GAO-14-704G.
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GAO-21-577 Paycheck Protection Program
that the borrower actually selected that exemption.90 According to SBA,
loans with identified issues are returned to SBA for additional review.
SBA’s processes for PPP loan reviews are generally consistent with
applicable standards for federal credit programs found in OMB Circular A-
129 (see table 3), based on our review of PPP rules and guidance and
internal SBA policies and procedures.91 Specifically, SBA’s processes
were consistent to the extent practicable with selected OMB standards for
applicant screening and for loan documentation standards. SBA’s
processes were partially consistent with OMB standards for managing
lenders and servicers and for credit program management. See appendix
IV for more details on our analysis.
Table 3: GAO Assessment of SBA Processes Compared against Circular A-129
Standards
OMB Circular A-129 Standard
GAO Assessment
Applicant screening
●
Loan documentation
●
Managing lenders and servicers
◐
Credit program management
◐
Legend:
● Consistent to the extent practicable
◐ Partially consistent
Source: GAO analysis of Office of Management and Budget (OMB) and Small Business Administration (SBA) documents. |
GAO-21-577
90A safe harbor allows borrowers to be exempted from any loan forgiveness reduction
based on a reduction in the number of full-time equivalents. The exemption allows
borrowers to indicate that they were unable to operate between February 15, 2020, and
the end of the covered period at the same level of business activity as before February 15,
2020, due to compliance with requirements established or guidance issued between
March 1, 2020, and December 31, 2020 (or, with respect to a PPP loan made on or after
December 27, 2020, between March 1, 2020, and the last day of the covered period with
respect to such loan), by the Secretary of Health and Human Services, the Director of the
Centers for Disease Control and Prevention, or the Occupational Safety and Health
Administration related to the maintenance of standards for sanitation, social distancing, or
any other worker or customer safety requirement related to COVID-19.
91OMB Circular No. A-129. Specifically, we assessed whether SBA’s processes were
consistent with those selected OMB standards we determined to be applicable to PPP.
See app. I for more information on our methodology.
SBA’s Review Process Is
Generally Consistent with
Federal Guidance, but
SBA’s Responses to
Lender Inquiries Are Not
Timely
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GAO-21-577 Paycheck Protection Program
We determined that SBA’s processes for PPP were consistent to the
extent practicable with the applicable OMB standards for applicant
screening. PPP loan applications include a section for borrowers to certify
that the information provided is accurate, to certify that neither the
applicant nor any owner of the applicant is delinquent on certain federal
debt, and to enter the applicant’s taxpayer identification number.
Under Circular A-129, federal credit granting agencies and private lenders
in guaranteed loan programs must determine whether applicants comply
with statutory, regulatory, and administrative eligibility requirements for
loan assistance. Standards applicable to PPP include borrowers certifying
the accuracy of information provided on loan applications, lenders
determining if a borrower is delinquent on any federal debt, and agencies
obtaining the taxpayer identification number of borrowers to confirm their
identity.92
We determined that SBA’s processes were consistent to the extent
practicable with the applicable OMB standards for loan origination files
under PPP. Borrowers submitted loan applications to lenders and
subsequent loan contracts were created for borrowers approved for a
PPP loan. Additionally, borrowers provided supporting documentation to
address their need for the PPP loan, which lenders then used to make a
“good-faith review” of borrowers’ need for the loan and justified loan
value.93 All supporting documentation is retained in the lender’s file.
Under the program’s first interim final rule, lenders were not required to
conduct a credit check before approving a PPP loan.94
92Other standards described under the applicant screening section of Circular A-129 are
not applicable to PPP, such as agency and lender attestation of borrower
creditworthiness.
93As set forth in the CARES Act, borrowers have to certify in good faith that (1) current
economic uncertainty made the loan request necessary to support the applicant’s ongoing
operations and (2) funds would be used to retain workers and maintain payroll or make
payments for other covered expenses. To streamline the process, SBA required minimal
loan underwriting from lenders—such as confirming receipt of borrower certifications and
supporting payroll documentation.
94The first interim final rule required lenders to (1) confirm receipt of borrower certifications
contained in the PPP application form issued by SBA, (2) confirm receipt of information
demonstrating that a borrower had employees for whom the borrower paid salaries and
payroll taxes on or around February 15, 2020, (3) confirm the dollar amount of average
monthly payroll costs for the preceding calendar year by reviewing the payroll
documentation submitted with the borrower’s application, and (4) follow applicable BSA
requirements. 85 Fed. Reg. 20,811, 80,815 (Apr. 15, 2020).
Consistency with Standards for
Applicant Screening
Consistency with Standards for
Loan Documentation
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Under Circular A-129, loan origination files should contain loan
applications, loan contracts, and other documents necessary to conform
to private-sector standards. Additionally, the CARES Act requires
documentation from eligible self-employed individuals, independent
contractors, and sole proprietorships to establish applicant eligibility, as
determined by SBA and the Secretary of the Treasury. Circular A-129
states that accurate and complete documentation is critical to providing
proper servicing of the debt, pursuing collection of delinquent debt, and in
the case of guaranteed loans, processing claim payments.
We determined SBA’s processes were partially consistent with selected
OMB standards for managing lenders and servicers under PPP.
Consistent with Circular A-129, SBA has published PPP lender and
servicer eligibility criteria in the Federal Register, and SBA’s lender
application forms include program rules and require certifications from
lenders that they will abide by them.95 Although SBA plans to conduct
reviews of PPP lenders, SBA was in the process of developing its lender
oversight plans as of July 2021.
Under Circular A-129, agencies should review and document a lender’s
eligibility for continued participation at least every 2 years, and conduct
on-site reviews that are prioritized based on lender performance and
exposure. Agencies should establish specific procedures to take
appropriate action when compliance or eligibility standards are not met.
SBA’s loan review and loan forgiveness review procedures include some
steps to identify lenders potentially noncompliant with program rules. As
of July 2021, SBA was developing aspects of its lender oversight plans,
including plans for monitoring the health of lender portfolios and
prioritizing reviews of lenders based on risk.
•
SBA began an aggregate review process to identify trends within and
across lenders in March 2021. According to SBA documentation,
implementation could not begin until March because a critical mass of
loan forgiveness applications had to be submitted before beginning
screening. As of May 2021, this process was ongoing.
•
SBA also plans to monitor lenders’ servicing of PPP loans with
residual balances (post-forgiveness portfolio) through its Office of
95Circular A-129 states that federal credit-granting agencies shall establish and publish in
the Federal Register specific eligibility criteria for lender or servicer participation in federal
credit programs. It states that agencies should enter into written agreements with lenders
that include participation requirements and performance standards.
Partial Consistency with
Standards for Managing
Lenders and Servicers
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Credit Risk Management, which oversees lender compliance for other
loan programs such as regular 7(a). As of July 2021, the office was
testing the metrics it planned to use to measure lender risk and target
lender oversight to lenders determined to be higher risk. SBA officials
said they may continue to refine the metrics over the next few months.
Once finalized, officials stated they plan to report these metrics on a
monthly and quarterly basis. Further, officials stated they are working
to develop a tiered structure of data analytics and artificial intelligence
to apply to PPP lender post-forgiveness portfolios to prioritize reviews.
In July 2021, SBA officials told us that they were still finalizing and
documenting their PPP review process.
•
For lenders that have not participated in SBA programs prior to PPP,
SBA officials told us they plan to prioritize reviews based on lender
type and risks identified. SBA officials acknowledged increased risk
associated with nonbank lenders, nonfederally regulated lenders, and
new SBA lenders that may not be familiar with SBA requirements.96
Officials told us they plan to provide training and coaching as
necessary to help ensure these lenders understand and comply with
program rules. If these lenders wish to participate in SBA’s traditional
lending programs in the future, SBA will consider lenders’ PPP
performance and responsiveness to SBA requests as part of the
vetting process for participation in traditional SBA lending programs.
We determined SBA’s processes for PPP were partially consistent with
selected OMB standards for credit program management. Consistent with
Circular A-129, SBA collects and reviews performance data, such as the
number and dollar amount of loans approved and forgiven, and its loan
review plan includes daily, weekly, and other periodic reporting of relevant
96Existing 7(a) lenders and some other SBA lenders were automatically approved to
participate in PPP, and new lenders had to apply to participate in the program. To
maximize the number of borrowers, PPP rules made a variety of lender types eligible,
including nonbank and noninsured depository institution lenders that met certain
requirements. SBA officials stated that as of February 2021, about 780 lenders new to
SBA programs had participated in PPP, 75–80 of which were nonbank lenders. These
new lenders were allowed to participate for the duration of the program.
Partial Consistency with
Standards for Communications
in Credit Program
Management
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GAO-21-577 Paycheck Protection Program
data to SBA leadership.97 However, SBA’s communication with lenders
during loan forgiveness reviews was not timely.
Circular A-129 standards state that agencies should establish and
document a policy for communications with stakeholders, including
applicants and lenders, about pending agency decisions on credit support
or potential amendments to existing credit support. The policy should
address the types of communications required, permissible, and
prohibited, along with any accompanying rules and procedures.
SBA has set up tools for lenders and SBA to communicate, such as
through a web portal and lender hotline.98 However, lenders we surveyed
and two lender associations we interviewed told us SBA has not
communicated with lenders in a timely manner on the status of loan
forgiveness applications. Forty-two of 322 lenders who responded to two
open-ended questions in our survey said they attempted to contact SBA,
but had not heard back from SBA or received delayed or inconsistent
responses. For example, seven of these lenders said they attempted to
contact SBA regarding loans that had not received a SBA forgiveness
determination within 90 days of the lender submitting its loan forgiveness
decision, but they had not heard back from SBA.99
Representatives of three lender associations we interviewed and state
banking associations also stated that SBA exceeded the 90-day review
window and was not responsive to lender inquiries on the status of loan
forgiveness determinations. For example, one lender association
representative reported some loan forgiveness determinations had been
with SBA for more than 140 days. Another association representative
stated it had contacted SBA directly to discuss loan forgiveness reviews
97Circular A-129 states agencies must have robust management and oversight
frameworks for credit programs to monitor progress towards achieving policy goals,
operating within acceptable risk thresholds, and taking action where appropriate to
increase or maintain efficiency and effectiveness. Agencies also must have monitoring,
diagnostic, and reporting mechanisms in place to provide senior officials and program
managers with a clear understanding of the program’s performance.
98SBA established a process for communicating with lenders through its PPP loan
platform while decisions on applications are pending. Lenders use the platform to submit
loan and forgiveness requests, monitor the status of these requests, and receive and
respond to requests for additional information from SBA. Lenders also may submit
questions related to loan forgiveness through a lender hotline or dedicated email inboxes.
99SBA’s Loan Review Procedures Interim Final Rule subjected the 90-day remittance
deadline to any SBA review of the loan or loan application. 85 Fed. Reg. 33,010, 33,013
(June 1, 2020).
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GAO-21-577 Paycheck Protection Program
on behalf of its members, but SBA had not responded to its request. In
addition, 51 state banking associations sent a letter to SBA in March 2021
stating that when lenders inquire with SBA about reviews exceeding 90
days, they often are met with silence about when SBA’s review will
conclude and whether the loans in question will be forgiven. They noted
that this lack of information leaves small business borrowers in a state of
uncertainty.
Lender association representatives provided additional examples of
communication challenges. For example, one association representative
told us SBA requested irrelevant supporting documents (such as a utility
bill, when a borrower did not indicate loan proceeds were used to pay
utilities). Another association representative said SBA had made multiple
requests to upload the same information. A representative of another
lender association wanted SBA to be more transparent and timely in its
communications, both as to why program decisions are made and why
loan reviews are delayed.
According to SBA officials, their system for responding to lender inquiries
has been ad hoc. They stated that SBA or contractor staff may respond to
lender questions, but they do not have a formal process. However, they
said they were developing a plan to provide lenders with time frames for
completing forgiveness reviews. They estimated the plan would be
finalized by summer 2021. While this plan may address some lender
concerns, it is not clear if it will include a process for responding to other
questions lenders may have.
Until SBA has developed and implemented a process for responding to
lender inquiries, the lack of clear and timely communication will likely
continue to contribute to confusion and uncertainty among borrowers and
lenders. Borrowers who believed SBA would complete forgiveness
reviews in 90 days or less may have made strategic decisions on a
business sale or tax planning, and might be forced to postpone or
abandon plans because of uncertainty caused by the SBA delay. Lenders
face similar challenges, because they remain uncertain whether SBA will
remit forgiveness payments or whether the lenders will need to continue
servicing loans. Lenders face reputational risk, because borrowers may
blame lenders for delays caused by SBA. Lenders also may face
increased costs as they divert staff toward managing borrower inquiries
related to untimely SBA communication of forgiveness decisions.
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SBA moved quickly to implement PPP to help businesses survive during
the COVID-19 pandemic. However, SBA initially put limited safeguards in
place that left the program vulnerable to improper payments and fraud.
SBA has continued to develop and issue rules and guidance in an effort
to improve safeguards and be responsive to lenders and borrowers, but
we found areas needing additional guidance or evaluation from SBA.
•
Process to address guarantee purchase of PPP loans. SBA has
not finalized a process for PPP lenders to claim the loan guarantee if
a borrower ceases operations or defaults on a loan. By finalizing this
process, SBA would help lenders avoid prolonged servicing costs on
these loans and help free up capital for additional lending.
•
Implementation of advance purchase provision. SBA has not
implemented the CARES Act provision requiring it to purchase PPP
loans in advance of SBA forgiving the loan. If SBA does not believe
that implementing this provision is necessary, explaining its position to
Congress and providing support for its views, including requesting any
statutory flexibilities or exceptions believed appropriate, would help
ensure that the agency is fulfilling its statutory duties.
•
Procedures for some reviews of borrower eligibility and loan
forgiveness decisions. SBA has not documented policies and
procedures for higher authority reviews and reviews conducted by a
committee of senior managers when SBA determines that the
borrower is ineligible for a PPP loan or the loan amount or loan
forgiveness amount claimed by the borrower. Finalizing and
documenting policies and procedures for these reviews would help
mitigate the risk of SBA making inconsistent or incorrect
determinations on borrower eligibility and loan forgiveness
applications.
•
Process to ensure timely communication. Although SBA
developed tools such as a web portal and lender hotline, some
lenders who responded to our survey cited SBA delays or
unresponsiveness to queries on the status of loan reviews. Without
developing and implementing a process to help ensure more timely
communication with lenders, borrowers and lenders will likely continue
to face confusion and uncertainty, making it difficult for them to make
management decisions.
Conclusions
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GAO-21-577 Paycheck Protection Program
We are making the following four recommendations to SBA:
The SBA Administrator should establish timeframes for finalizing and
issuing a PPP-specific loan guarantee purchase process, including
allowing lenders to claim the SBA guarantee when they have evidence
the business ceased operations or declared bankruptcy.
(Recommendation 1)
The SBA Administrator should implement the advance purchase provision
in the CARES Act or report to Congress why the agency has not
complied, including seeking statutory flexibilities or exceptions believed
appropriate. (Recommendation 2)
The SBA Administrator should establish timeframes for finalizing and
issuing its procedures for higher authority reviews and reviews conducted
by a committee of senior managers. (Recommendation 3)
The SBA Administrator should develop and implement a process to
ensure it responds in a timely manner to PPP lender inquiries on loan
reviews. (Recommendation 4)
We provided a draft of this report to SBA and Treasury for their review
and comment. SBA provided comments in a letter, which is reproduced in
appendix V. In its comments, SBA generally agreed with our four
recommendations. SBA and Treasury provided technical comments we
incorporated as appropriate.
SBA cited actions it will take to address the recommendations.
Specifically, SBA noted it would (1) finalize its guidance defining the PPP-
specific loan guarantee purchase process, including allowing lenders to
claim the SBA guarantee when they have evidence the business ceased
operations or declared bankruptcy; (2) finalize its procedures for higher
authority reviews of PPP loans; and (3) provide procedures to ensure
timely responses to PPP lender inquiries. On July 15, 2021, SBA
released guidance on the guarantee purchase process for PPP loans. We
are evaluating how, if at all, this guidance may address the findings in this
report.
Regarding our recommendation that SBA implement the advance
purchase provision in the CARES Act or report to Congress why the
agency has not complied, including seeking statutory flexibilities or
exceptions believed appropriate, SBA stated it would not implement this
provision because it believes the Federal Reserve’s PPP Liquidity Facility
Recommendations for
Executive Action
Agency Comments
and Our Evaluation
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GAO-21-577 Paycheck Protection Program
provides a better vehicle for lender liquidity. Instead, SBA said it would
notify Congress of its request to seek statutory flexibility on this matter or
would request that Congress repeal the advance purchase requirement.
As we note in the report, if SBA does not believe that implementing this
provision is necessary, explaining its position to Congress and providing
support for its views, including requesting any statutory flexibilities or
exceptions believed appropriate, would help ensure that the agency is
fulfilling its statutory duties.
We are sending copies of this report to the appropriate congressional
committees, the SBA Administrator, the Secretary of the Treasury, and
other interested parties. In addition, the report is available at no charge on
the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact
me at (202) 512-8678 or shearw@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made key contributions to this report
are listed in appendix VI.
William B. Shear
Director, Financial Markets and
Community Investment
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GAO-21-577 Paycheck Protection Program
Congressional Addressees
The Honorable Patrick Leahy
Chairman
The Honorable Richard Shelby
Vice Chairman
Committee on Appropriations
United States Senate
The Honorable Ron Wyden
Chairman
The Honorable Mike Crapo
Ranking Member
Committee on Finance
United States Senate
The Honorable Patty Murray
Chair
The Honorable Richard Burr
Ranking Member
Committee on Health, Education, Labor, and Pensions
United States Senate
The Honorable Gary C. Peters
Chair
The Honorable Rob Portman
Ranking Member
Committee on Homeland Security and Governmental Affairs
United States Senate
The Honorable Benjamin Cardin
Chairman
The Honorable Rand Paul
Ranking Member
Committee on Small Business and Entrepreneurship
United States Senate
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GAO-21-577 Paycheck Protection Program
Congressional Addressees Continued
The Honorable Kyrsten Sinema
Chair
The Honorable James Lankford
Ranking Member
Subcommittee on Government Operations and Border Management
Committee on Homeland Security and Governmental Affairs
United States Senate
The Honorable Rosa L. DeLauro
Chairwoman
The Honorable Kay Granger
Ranking Member
Committee on Appropriations
House of Representatives
The Honorable Frank Pallone, Jr.
Chairman
The Honorable Cathy McMorris Rodgers
Republican Leader
Committee on Energy and Commerce
House of Representatives
The Honorable Bennie G. Thompson
Chairman
The Honorable John Katko
Ranking Member
Committee on Homeland Security
House of Representatives
The Honorable Carolyn B. Maloney
Chairwoman
The Honorable James Comer
Ranking Member
Committee on Oversight and Reform
House of Representatives
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GAO-21-577 Paycheck Protection Program
Congressional Addressees Continued
The Honorable Nydia M. Velázquez
Chairwoman
The Honorable Blaine Luetkemeyer
Ranking Member
Committee on Small Business
House of Representatives
The Honorable Richard Neal
Chair
The Honorable Kevin Brady
Republican Leader
Committee on Ways and Means
House of Representatives
The Honorable Elizabeth Warren
United States Senate
The Honorable Earl Blumenauer
House of Representatives
The Honorable Steve Cohen
House of Representatives
The Honorable Peter A. DeFazio
House of Representatives
The Honorable Diana DeGette
House of Representatives
The Honorable Mike Doyle
House of Representatives
The Honorable John Garamendi
House of Representatives
The Honorable Raúl M. Grijalva
House of Representatives
The Honorable Jahana Hayes
House of Representatives
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GAO-21-577 Paycheck Protection Program
Congressional Addressees Continued
The Honorable Henry C. Johnson, Jr.
House of Representatives
The Honorable Barbara Lee
House of Representatives
The Honorable Mike Levin
House of Representatives
The Honorable James P. McGovern
House of Representatives
The Honorable Grace F. Napolitano
House of Representatives
The Honorable Eleanor Holmes Norton
House of Representatives
The Honorable Chellie Pingree
House of Representatives
The Honorable Ayanna Pressley
House of Representatives
The Honorable Mary Gay Scanlon
House of Representatives
The Honorable Jan Schakowsky
House of Representatives
The Honorable Adam Smith
House of Representatives
The Honorable Darren Soto
House of Representatives
The Honorable Jackie Speier
House of Representatives
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Congressional Addressees Continued
The Honorable Rashida Tlaib
House of Representatives
The Honorable Paul Tonko
House of Representatives
The Honorable Norma J. Torres
House of Representatives
The Honorable Bonnie Watson Coleman
House of Representatives
The Honorable Frederica S. Wilson
House of Representatives
Appendix I: Objectives, Scope, and
Methodology
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This report examines (1) safeguards that the Small Business
Administration (SBA) put in place during the Paycheck Protection
Program (PPP) loan approval process, (2) the PPP loan forgiveness
process, including processes for unforgiven loans, and (3) SBA’s
oversight of PPP loans and lenders.
For all of the objectives, we interviewed officials from SBA’s Office of
Capital Access, which administers PPP. We also interviewed
representatives of the following four lending industry associations to
obtain their perspectives on SBA’s implementation of PPP: American
Bankers Association, National Association of Federally-Insured Credit
Unions, National Association of Government Guaranteed Lenders, and
Opportunity Finance Network.1 We selected these organizations because
they represent a variety of lenders that offered PPP loans, including
banks, credit unions, and community-based financial institutions. Their
views are not generalizable to other lender associations but offered
important perspectives. In addition, we interviewed officials from the
Department of the Treasury (Treasury) to get their perspective on PPP
implementation.
To gain lenders’ perspectives on SBA’s implementation of PPP, including
the PPP loan approval and loan forgiveness processes, we administered
a web-based survey to a representative sample of PPP lenders. In the
survey, we asked lenders about characteristics of their PPP loans, SBA
guidance, the level of resources required to participate in PPP, and
challenges encountered through program participation. We administered
the survey from February 2021 to April 2021, and we collected
information for the 14-month period from March 2020 to April 2021.
Appendix II contains information on the survey results.
To identify the universe of PPP lenders, we used data provided by SBA
on August 3, 2020, which contained 5,466 lenders. We stratified our
sample (seven strata) and used a stratified random sample of each: (1)
small banks and savings and loans, (2) medium banks and savings and
loans, (3) large banks and savings and loans, (4) extra-large banks, (5)
1The American Bankers Association represents banks of all sizes; the National
Association of Federally-Insured Credit Unions represents federally-insured credit unions;
National Association of Government Guaranteed Lenders represents members of the
small business lending community that use SBA business loan programs; and the
Opportunity Finance Network represents Community Development Financial Institutions.
Appendix I: Objectives, Scope, and
Methodology
Appendix I: Objectives, Scope, and
Methodology
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credit unions, (6) nonbank lending institutions, and (7) minority-owned
depository institutions and community development financial institutions.2
Our initial sample size was designed to achieve a stratum-level margin of
error of no greater than plus or minus 8 percentage points for an attribute
level at the 95 percent level of confidence. We assumed a response rate
of 50 percent to determine the sample size for each stratum. Because
there were nine extra-large banks in the population, we included all of
them in the sample. Fifteen of the lenders included in the population list
lacked sufficient information for us to determine their appropriate stratum.
We treated these sample cases as out-of-scope; this adjusted our
population of lenders to 5,451. Our resulting sample size was 1,383, and
we received 781 survey responses.
Because we followed a probability procedure based on random
selections, our sample is one of a large number of samples that we might
have drawn. Since each sample could have provided different estimates,
we express our confidence in the precision of our particular sample’s
results as a 95 percent confidence interval (for example, plus or minus 8
percentage points). This is the interval that would contain the actual
population value for 95 percent of the samples we could have drawn.
Confidence intervals are provided with each sample estimate in the
report. All survey results presented in the body of this report are
generalizable to the estimated population of 5,451 in-scope depository
institutions, except where otherwise noted.
To select lenders for interview, we drew a stratified sample using six
sampling strata: (1) small banks and savings and loans, (2) medium
banks and savings and loan, (3) large banks and savings and loan, (4)
credit unions, (5) nonbank lending institutions, and (6) community
development financial institutions.3 We also selected lenders to achieve
variation in (1) whether lenders had previously participated in SBA
lending programs (or were new to SBA lending), (2) whether lenders were
2We defined small banks and savings and loans as those with less than $250 million in
total assets, medium banks and savings and loans as those with $250 million or more and
less than $1 billion in total assets, large banks and savings and loans as those with $1
billion or more and less than $250 billion in total assets, and extra-large banks as those
with $250 billion or more in total assets.
3We defined small banks and savings and loans as those with less than $10 billion in total
assets, medium banks and savings and loans as those with $10 billion or more and less
than $1 trillion in total assets, and large banks as those with $1 trillion or more in total
assets.
Appendix I: Objectives, Scope, and
Methodology
Page 60
GAO-21-577 Paycheck Protection Program
a minority-owned depository institution, and (3) geography, using regions
identified in a Census Bureau map. We conducted pretests of the survey
with the seven banks we interviewed to ensure survey questions were
clear, obtain any suggestions for clarification, and determine whether
representatives would be able to provide responses to questions with
minimal burden.
To examine the safeguards SBA put in place during the PPP loan
approval process, we analyzed key provisions related to PPP in the
CARES Act, the Paycheck Protection Program and Health Care
Enhancement Act, the Consolidated Appropriations Act, 2021, and the
American Rescue Plan Act, among others.4 We also analyzed SBA’s
design and implementation of those provisions based on interim final
rules, procedural notices, and responses to frequently asked questions
(FAQ), including changes to the program SBA made when it launched
Round 2 in January 2021. We reviewed SBA’s annual financial statement
audit, reports issued by the SBA Office of Inspector General, and prior
GAO reports.5
To analyze lending activity for PPP loans issued to borrowers charged by
the Department of Justice (DOJ), we identified fraud-related cases by
reviewing publicly available DOJ and court information as of March 2021.
We compared borrowers identified through DOJ cases to PPP loan-level
data, which contained associated lender information. We did not conduct
in-depth analyses of lender antifraud controls. We interviewed three
industry professionals with knowledge of synthetic identity fraud, lending
4Pub. L. No. 116-136, 134 Stat. 281, (2020); Pub. L. No. 116-139,134 Stat. 620 (2020);
Pub. L. No. 116-260, div. N, tit. III, 134 Stat. 1182, 1993 (2020); and Pub. L. No. 117-2, §
5001, 135 Stat. 4, 81 (2021).
5For example, Small Business Administration, Office of Performance Management and the
Chief Financial Officer, Agency Financial Report Fiscal Year 2020 (Washington, D.C.:
Dec. 18, 2020); Small Business Administration, Office of Inspector General, Flash Report:
Duplicate Loans Made Under the Paycheck Protection Program, Report No. 21-09
(Washington, D.C.: Mar. 15, 2021); GAO, COVID-19: Opportunities to Improve Federal
Response and Recovery Efforts, GAO-20-625 (Washington, D.C.: June 25, 2020);
COVID-19: Brief Update on Initial Federal Response to the Pandemic, GAO-20-708
(Washington, D.C.: Aug. 31, 2020); COVID-19: Federal Efforts Could Be Strengthened by
Timely and Concerted Actions, GAO-20-701 (Washington, D.C.: Sept. 21, 2020); COVID-
19: Urgent Actions Needed to Better Ensure an Effective Federal Response, GAO-21-191
(Washington, D.C.: Nov. 30, 2020); COVID-19: Critical Vaccine Distribution, Supply Chain,
Program Integrity, and Other Challenges Require Focused Federal Attention, GAO-21-265
(Washington, D.C.: Jan. 28, 2021); and COVID-19: Sustained Federal Action Is Crucial as
Pandemic Enters Its Second Year, GAO-21-387 (Washington, D.C.: Mar. 31, 2021).
Appendix I: Objectives, Scope, and
Methodology
Page 61
GAO-21-577 Paycheck Protection Program
fraud, and financial crime selected based on previous GAO work and
subject matter expertise.
To examine the PPP loan forgiveness process, including processes for
unforgiven loans, we analyzed key statutory provisions in PPP-related
legislation. We analyzed SBA’s design and implementation of those
provisions based on interim final rules, procedural notices, FAQs, and
loan forgiveness forms. Additionally, we interviewed agency officials from
SBA and Treasury, officials from an SBA contractor that developed the
PPP loan forgiveness platform, and officials from an SBA contractor that
conducted PPP loan reviews to get their perspectives on the development
and implementation of the loan forgiveness process. We compared SBA’s
policies and processes against government-wide guidance for the
management and operation of federal credit programs contained in the
Office of Management and Budget’s (OMB) Circular A-129 and the
CARES Act.6
We also analyzed loan-level data on loan forgiveness from SBA’s
Paycheck Protection Platform as of May 17, 2021.7 We limited our review
to loans made during 2020 (Round 1) because those borrowers were
more likely to have used their loan proceeds and begun applying for loan
forgiveness. We used these data to develop summary statistics regarding
which borrowers had applied for and received loan forgiveness, and
SBA’s review of those applications. We determined these data were
sufficiently reliable for the purposes of describing characteristics
associated with SBA’s processing of loan forgiveness applications by
reviewing related documentation, interviewing knowledgeable agency
officials, and performing electronic testing.
To examine SBA’s oversight of PPP loans and lenders, we reviewed
public rules and guidance issued by SBA for PPP borrowers and lenders,
as well as internal SBA policies and procedures covering PPP loan
reviews and loan forgiveness reviews. We compared these policies and
procedures against federal internal control standards.8 We determined
6Office of Management and Budget, Policies for Federal Credit Programs and Non-Tax
Receivables, OMB Circular No. A-129 (Washington, D.C.: January 2013). Pub. L. No.
116-136, 134 Stat. 281 (2020).
7The SBA Paycheck Protection Platform is the platform PPP lenders use to submit loan
forgiveness decisions to PPP. In addition, lenders used the platform to submit new loan
applications during Round 2.
8GAO, Standards for Internal Control in the Federal Government, GAO-14-704G
(Washington, D.C.: Sept. 10, 2014).
Appendix I: Objectives, Scope, and
Methodology
Page 62
GAO-21-577 Paycheck Protection Program
that the control activities component of internal controls was significant to
the objective, along with the underlying principle that management should
document in policies the control responsibilities of the organization. We
reviewed the loan eligibility and forgiveness review policies to determine
whether all processes were documented. Additionally, we interviewed
officials from an SBA contractor that conducted PPP loan reviews and
officials from an SBA contractor that tested SBA’s PPP loan review
process for quality assurance. We obtained these officials’ perspectives
on the development and implementation of the loan review process.
We also compared SBA’s policies and procedures for managing elements
of PPP against government-wide guidance for the management and
operation of federal credit programs in OMB Circular A-129. We focused
our comparison on consistency with selected standards in OMB Circular
A-129’s Section III, Credit Extension and Management Policy, which
covers applicant screening, loan documentation and collateral, managing
lenders and servicers, and credit program management. For each
standard, we assessed whether it was applicable to PPP, and if so,
whether SBA’s processes, as described in related rules, guidance,
policies, and procedures, were consistent with the selected standard.9
We conducted this performance audit from June 2020 to July 2021 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
9Where we deemed selected standards not applicable to PPP, we based that
determination on the provisions of the CARES Act or other legislation. For example, the
CARES Act waived requirements related to borrower personal guarantees and collateral,
so we deemed Circular A-129 standards related to these topics to be not applicable. In
some instances, the CARES Act requires a departure from standards that prevent full
consistency. For example, the CARES Act explicitly waives the “credit elsewhere” test that
is normally required as part of applicant screening. In these cases, we assessed whether
SBA processes were consistent with standards to the extent practicable given limitations
or waivers imposed in legislation.
Appendix II: Results from Survey of Paycheck
Protection Program Lenders
Page 63
GAO-21-577 Paycheck Protection Program
From February 2021 to April 2021, we administered a web-based survey
to a representative sample of Paycheck Protection Program (PPP)
lenders. In the survey, we asked lenders about characteristics of their
PPP loans, Small Business Administration (SBA) guidance, the level of
resources required to participate in PPP, and challenges encountered
through program participation. We collected information for the 14-month
period from March 2020 to April 2021. All survey results presented in this
appendix are generalizable to the population of lenders, except where
otherwise noted. We obtained a weighted response rate of 57.3 percent.1
Because our estimates are from a generalizable sample, we express our
confidence in the precision of our particular estimates as 95 percent
confidence intervals. Our survey was comprised of closed- and open-
ended questions. In this appendix, we do not provide information on
responses to the open-ended questions. For a more detailed discussion
of our survey methodology, see appendix I.
Table 4: How many PPP applications did your organization receive? (Question 1)
Estimated mean
95 percent confidence
interval—lower bound
95 percent confidence
interval—upper bound
1,512
811
2,213
Source: GAO. | GAO-21-577
Table 5: How many PPP loans did your organization fund? (Question 2)
Estimated mean
95 percent confidence
interval—lower bound
95 percent confidence
interval—upper bound
1,179
692
1,666
Source: GAO. | GAO-21-577
1We used a weighted response rate because our survey sample incorporates strata with
different probabilities of selection. A weighted response rate may more accurately reflect
the level of participation. For example, large units that contribute relatively more to the
estimate of a total would have a larger “weight” on the response rate.
Appendix II: Results from Survey of
Paycheck Protection Program Lenders
Appendix II: Results from Survey of Paycheck
Protection Program Lenders
Page 64
GAO-21-577 Paycheck Protection Program
Table 6: In general, did your organization accept applications from the following types of borrowers? (Question 3)
Responses
Estimated
percentage
95 percent confidence
interval—lower bound
(percentage)
95 percent confidence
interval—upper bound
(percentage)
3a. Borrowers with
whom you had no prior
relationship
Yes
75.5
72.5
78.5
No
22.8
19.9
25.8
n/a
1.6
0.9
2.8
3b. Borrowers with
whom you had a prior
depository relationship
Yes
96.1
94.5
97.4
No
0.6
0.2
1.5
n/a
3.3
2.1
4.8
3c. Borrowers with
whom you had a prior
lending relationship
Yes
97.9
96.6
98.8
No
0.9
0.3
1.8
n/a
1.2
0.6
2.3
Legend: n/a = not applicable
Source: GAO. | GAO-21-577
Table 7: Among PPP loan applications that your institution did not approve, how common was each of the following reasons
for why your organization did not approve an application? (Question 4)
Responses
Estimated
percentage
95 percent confidence
interval—lower bound
(percentage)
95 percent confidence
interval—upper bound
(percentage)
4a. Applicant was not eligible
based on program
requirements
Very common
27.7
24.5
30.9
Moderately common
12.1
9.9
14.3
Somewhat common
22.9
19.9
25.8
Not at all common
29.5
26.2
32.8
Do not know
7.9
6.0
10.1
4b. Applicant did not provide all
necessary documentation
Very common
13.7
11.4
16.1
Moderately common
10.4
8.4
12.4
Somewhat common
25.1
22.1
28.1
Not at all common
41.8
38.3
45.3
Do not know
9.0
7.0
11.4
4c. Applicant had already
received or applied for another
PPP loan
Very common
8.1
6.2
10.3
Moderately common
8.4
6.5
10.7
Somewhat common
20.1
17.3
22.9
Not at all common
54.2
50.7
57.8
Do not know
9.2
7.1
11.6
4d. Applicant withdrew
application
Very common
8.7
6.7
11.0
Moderately common
6.0
4.4
8.0
Somewhat common
26.2
23.2
29.2
Appendix II: Results from Survey of Paycheck
Protection Program Lenders
Page 65
GAO-21-577 Paycheck Protection Program
Responses
Estimated
percentage
95 percent confidence
interval—lower bound
(percentage)
95 percent confidence
interval—upper bound
(percentage)
Not at all common
51.2
47.7
54.8
Do not know
7.9
6.0
10.1
Source: GAO. | GAO-21-577
Table 8: Approximately what percentage of your organization’s approved PPP loans went to existing clients (those with either
a previous depository or lending relationship)? (Question 5)
Responses
Estimated
percentage
95 percent confidence interval—
lower bound (percentage)
95 percent confidence interval—
upper bound (percentage)
0–25 percent
4.6
3.2
6.3
26–50 percent
5.2
3.7
7.0
51–75 percent
19.1
16.4
21.8
76–100 percent
68.2
65.1
71.3
Do not know
2.9
1.9
4.4
Source: GAO. | GAO-21-577
Table 9: Considering the information provided by SBA for the PPP loan guarantees that were available through August 8,
2020, how helpful to your organization was the information about the loan approval process (e.g., interim final rules, FAQs,
training)? (Question 6)
Responses
Estimated
percentage
95 percent confidence interval—
lower bound (percentage)
95 percent confidence interval—
upper bound (percentage)
Very helpful
18.9
16.2
21.7
Moderately helpful
37.6
34.2
41.0
Somewhat helpful
38.9
35.5
42.3
Not helpful
4.2
2.9
5.9
Do not know
0.4
0.1
1.1
Source: GAO. | GAO-21-577
Appendix II: Results from Survey of Paycheck
Protection Program Lenders
Page 66
GAO-21-577 Paycheck Protection Program
Table 10: How did the level of resources required for processing and approving loan applications differ from your
expectations when you started participating in the program? (Question 7)
Responses
Estimated
percentage
95 percent confidence interval—
lower bound (percentage)
95 percent confidence interval—
upper bound (percentage)
Much higher
18.8
16.3
21.3
Higher
28.0
24.9
31.1
As expected
34.2
30.8
37.6
Lower
12.7
10.3
15.1
Much lower
4.3
3.0
6.0
Do not know
2.0
1.1
3.3
Source: GAO. | GAO-21-577
Table 11: How challenging, if at all, was each of the following to your organization when approving PPP loan applications
from borrowers? (Question 8)
Responses
Estimated
percentage
95 percent confidence
interval—lower bound
(percentage)
95 percent confidence
interval—upper bound
(percentage)
8a. Incomplete application
forms from borrowers
Very challenging
18.4
15.9
20.8
Moderately challenging
32.5
29.3
35.8
Somewhat challenging
34.5
31.1
37.8
Not at all challenging
14.1
11.6
16.7
Do not know
0.5
0.1
1.3
8b. Insufficient documentation
from borrowers
Very challenging
18.7
16.3
21.2
Moderately challenging
34.2
31.0
37.5
Somewhat challenging
33.7
30.4
37.1
Not at all challenging
12.8
10.3
15.3
Do not know
0.5
0.1
1.3
8c. Borrowers’ lack of
understanding of PPP terms
and conditions
Very challenging
32.5
29.3
35.6
Moderately challenging
34.1
30.8
37.5
Somewhat challenging
25.4
22.3
28.5
Not at all challenging
7.4
5.6
9.6
Do not know
0.6
0.2
1.4
8d. Changes in program rules
and guidance from SBA (e.g.,
interim final rules, FAQs)
Very challenging
61.9
58.5
65.4
Moderately challenging
24.6
21.5
27.7
Somewhat challenging
10.5
8.3
12.7
Not at all challenging
2.4
1.4
3.8
Do not know
0.6
0.2
1.4
Appendix II: Results from Survey of Paycheck
Protection Program Lenders
Page 67
GAO-21-577 Paycheck Protection Program
Responses
Estimated
percentage
95 percent confidence
interval—lower bound
(percentage)
95 percent confidence
interval—upper bound
(percentage)
8e. Lack of central SBA
document containing program
rules and guidance
Very challenging
43.9
40.5
47.4
Moderately challenging
31.4
28.1
34.6
Somewhat challenging
18.1
15.4
20.8
Not at all challenging
5.6
4.1
7.5
Do not know
1.0
0.4
2.0
8f. Borrowers flagged in E-Tran
for submitting multiple
applications after your
organization had processed the
loan
Very challenging
6.5
4.9
8.5
Moderately challenging
10.0
8.2
11.9
Somewhat challenging
25.9
22.8
28.9
Not at all challenging
51.6
48.1
55.0
Do not know
6.0
4.4
7.9
8g. Getting SBA preferred
lender status
Very challenging
6.4
4.7
8.5
Moderately challenging
7.2
5.5
9.3
Somewhat challenging
13.0
10.6
15.5
Not at all challenging
59.6
56.1
63.0
Do not know
13.8
11.4
16.2
8h. Getting initial access to E-
Tran
Very challenging
24.5
21.4
27.6
Moderately challenging
15.9
13.3
18.5
Somewhat challenging
20.7
17.8
23.6
Not at all challenging
36.8
33.5
40.1
Do not know
2.1
1.2
3.3
8i. Getting access to E-Tran for
additional users
Very challenging
15.5
12.9
18.2
Moderately challenging
17.3
14.7
20.0
Somewhat challenging
24.4
21.4
27.4
Not at all challenging
35.9
32.6
39.3
Do not know
6.8
5.1
8.8
8j. Loan application processing
time in E-Tran took longer than
expected
Very challenging
21.4
18.5
24.3
Moderately challenging
18.9
16.1
21.7
Somewhat challenging
20.1
17.3
22.9
Not at all challenging
37.6
34.2
40.9
Do not know
2.1
1.2
3.3
8k. Greater risk to your
institution than originally
expected
Very challenging
5.7
4.2
7.6
Moderately challenging
12.6
10.5
14.8
Somewhat challenging
26.3
23.2
29.3
Not at all challenging
50.1
46.6
53.5
Do not know
5.4
3.9
7.2
Source: GAO. | GAO-21-577
Appendix II: Results from Survey of Paycheck
Protection Program Lenders
Page 68
GAO-21-577 Paycheck Protection Program
Table 12: Did your organization use internal staff, a third-party vendor, or both to intake or review PPP loan applications or to
submit those applications to SBA? (Question 9)
Responses
Estimated
percentage
95 percent confidence interval—
lower bound (percentage)
95 percent confidence interval—
upper bound (percentage)
Internal staff
83.6
81.2
85.9
Third-party vendor
1.5
0.8
2.6
Both
14.9
12.6
17.2
Source: GAO. | GAO-21-577
Table 13: Did your organization use the Federal Reserve’s PPP Liquidity Facility (PPPLF)? (Question 10)
Responses
Estimated
percentage
95 percent confidence interval—
lower bound (percentage)
95 percent confidence interval—
upper bound (percentage)
Yes
11.2
9.1
13.4
No, aware of PPPLF
50.6
47.2
54.1
No, unaware of PPPLF
28.0
25.0
31.1
Do not know
10.1
8.1
12.1
Source: GAO. | GAO-21-577
Table 14: How helpful has the PPPLF been to your organization? (Question 10b)
Responses
Estimated
percentage
95 percent confidence interval—
lower bound (percentage)
95 percent confidence interval—
upper bound (percentage)
Very helpful
54.8
44.4
65.1
Moderately helpful
13.6
7.3
22.3
Somewhat helpful
24.5
15.6
35.2
Not helpful
3.7
0.8
9.9
Do not know
3.5
0.8
9.6
Source: GAO. | GAO-21-577
Note: This question was only asked of lenders that answered yes to using the Federal Reserve’s PPP
Liquidity Facility (question 10).
Appendix II: Results from Survey of Paycheck
Protection Program Lenders
Page 69
GAO-21-577 Paycheck Protection Program
Table 15: Considering the information provided by SBA, how helpful to your organization was the information about the loan
forgiveness process (e.g., interim final rules, FAQs, training)? (Question 11)
Responses
Estimated
percentage
95 percent confidence interval—
lower bound (percentage)
95 percent confidence interval—
upper bound (percentage)
Very helpful
18.7
15.9
21.5
Moderately helpful
39.7
36.2
43.1
Somewhat helpful
35.4
32.1
38.7
Not helpful
5.9
4.3
7.8
Do not know
0.3
0.0
1.0
Source: GAO. | GAO-21-577
Table 16: How has the level of resources required for making loan forgiveness decisions differed from your expectations
when you started participating in the program? (Question 12)
Responses
Estimated
percentage
95 percent confidence interval—
lower bound (percentage)
95 percent confidence interval—
upper bound (percentage)
Much higher
14.4
12.0
16.7
Higher
23.2
20.4
26.1
As expected
49.1
45.7
52.6
Lower
9.6
7.5
11.6
Much lower
2.0
1.1
3.2
Do not know
1.7
0.9
2.8
Source: GAO. | GAO-21-577
Table 17: On average, about how many staff hours has it taken your organization to review a borrower’s loan forgiveness
form and related documentation and submit your loan forgiveness decision to SBA? (Question 13)
Responses
Estimated
percentage
95 percent confidence
interval—lower bound
(percentage)
95 percent confidence
interval—upper bound
(percentage)
13a. Form 3508
Less than 1 hour
18.2
15.3
21.0
1–3 hours
41.8
38.3
45.3
4–6 hours
18.9
16.2
21.7
7–10 hours
3.8
2.5
5.4
More than 10 hours
3.6
2.4
5.2
Do not know
13.7
11.3
16.1
13b. Form 3508EZ
Less than 1 hour
40.7
37.2
44.1
1–3 hours
44.8
41.3
48.3
4–6 hours
6.0
4.4
7.9
7–10 hours
0.9
0.3
1.8
More than 10 hours
1.3
0.6
2.4
Appendix II: Results from Survey of Paycheck
Protection Program Lenders
Page 70
GAO-21-577 Paycheck Protection Program
Responses
Estimated
percentage
95 percent confidence
interval—lower bound
(percentage)
95 percent confidence
interval—upper bound
(percentage)
Do not know
6.4
4.8
8.4
13c. Form 3508S
Less than 1 hour
63.1
59.7
66.4
1–3 hours
26.3
23.2
29.4
4–6 hours
2.7
1.7
4.1
7–10 hours
0.1
0.0
0.7
More than 10 hours
1.4
0.6
2.6
Do not know
6.5
4.8
8.5
Source: GAO. | GAO-21-577
Table 18: About what percentage of loan forgiveness applications received to date were submitted with Form 3508, Form
3508EZ, and Form 3508S? (Question 14)
Responses
Estimated
percentage
95 percent confidence
interval—lower bound
(percentage)
95 percent confidence
interval—upper bound
(percentage)
14a. Form 3508
0–25 percent
72.4
69.3
75.6
26–50 percent
7.2
5.4
9.3
51–75 percent
2.3
1.3
3.7
76–100 percent
3.6
2.3
5.3
Do not know
14.5
12.0
16.9
14b. Form 3508EZ
0–25 percent
26.9
23.8
29.9
26–50 percent
32.2
29.0
35.5
51–75 percent
16.5
13.9
19.1
76–100 percent
11.5
9.2
13.8
Do not know
12.9
10.6
15.1
14c. Form 3508S
0–25 percent
17.0
14.3
19.6
26–50 percent
22.7
19.7
25.7
51–75 percent
25.3
22.2
28.4
76–100 percent
20.8
17.9
23.7
Do not know
14.2
11.9
16.6
Source: GAO. | GAO-21-577
Appendix II: Results from Survey of Paycheck
Protection Program Lenders
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Table 19: For what parts of the loan forgiveness process does your organization use internal staff, a third-party vendor, or
both to process loan forgiveness applications? (Question 15)
Responses
Estimated
percentage
95 percent confidence
interval—lower bound
(percentage)
95 percent confidence
interval—upper bound
(percentage)
15a. Application receipt
Internal staff
82.3
80.0
84.7
Third-party vendor
9.5
7.7
11.2
Both
8.2
6.4
10.4
15b. Document sufficiency
review
Internal staff
91.1
89.3
92.8
Third-party vendor
2.6
1.6
4.0
Both
6.3
4.7
8.3
15c. Forgiveness decision
determination
Internal staff
93.5
91.5
95.1
Third-party vendor
1.5
0.8
2.7
Both
5.0
3.6
6.8
15d. Decision submission
to SBA
Internal staff
86.3
84.2
88.4
Third-party vendor
6.9
5.3
9.0
Both
6.7
5.1
8.7
15e. Processing after SBA
loan review
Internal staff
91.7
89.5
93.5
Third-party vendor
1.9
1.1
3.2
Both
6.4
4.8
8.4
Source: GAO. | GAO-21-577
Table 20: How challenging, if at all, are each of the following to your organization during the loan forgiveness process?
(Question 16)
Responses
Estimated
percentage
95 percent confidence
interval—lower bound
(percentage)
95 percent confidence
interval—upper bound
(percentage)
16a. Incomplete application
forms from borrowers
Very challenging
17.7
15.2
20.2
Moderately challenging
32.9
29.6
36.1
Somewhat challenging
34.7
31.4
38.1
Not at all challenging
13.4
11.0
15.9
Do not know
1.2
0.6
2.3
16b. Insufficient documentation
from borrowers
Very challenging
21.8
19.2
24.4
Moderately challenging
34.4
31.1
37.7
Somewhat challenging
31.2
27.9
34.5
Not at all challenging
11.4
9.0
13.7
Appendix II: Results from Survey of Paycheck
Protection Program Lenders
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Responses
Estimated
percentage
95 percent confidence
interval—lower bound
(percentage)
95 percent confidence
interval—upper bound
(percentage)
Do not know
1.2
0.6
2.3
16c. Borrowers’ lack of
understanding of the PPP loan
forgiveness process
Very challenging
29.6
26.5
32.6
Moderately challenging
31.8
28.6
35.1
Somewhat challenging
28.4
25.2
31.6
Not at all challenging
8.9
6.9
11.3
Do not know
1.3
0.6
2.3
16d. Incorrect calculations
submitted by borrowers, such
as inclusion of ineligible
expenses
Very challenging
14.6
12.3
16.9
Moderately challenging
28.5
25.3
31.6
Somewhat challenging
34.7
31.3
38.1
Not at all challenging
20.8
17.9
23.8
Do not know
1.4
0.7
2.5
16e. Changes in program
guidance and rules from SBA
(e.g., interim final rules, FAQs)
Very challenging
39.0
35.6
42.4
Moderately challenging
29.6
26.4
32.8
Somewhat challenging
22.2
19.2
25.1
Not at all challenging
7.9
6.1
10.1
Do not know
1.3
0.7
2.4
16f. Lack of central SBA
document containing program
rules and guidance
Very challenging
33.0
29.8
36.3
Moderately challenging
25.0
22.0
28.0
Somewhat challenging
26.9
23.7
30.0
Not at all challenging
13.0
10.6
15.3
Do not know
2.1
1.2
3.4
16g. Submitting loan
forgiveness decisions through
SBA’s PPP loan forgiveness
portal
Very challenging
3.1
2.0
4.6
Moderately challenging
7.6
5.8
9.7
Somewhat challenging
23.9
20.9
27.0
Not at all challenging
62.6
59.2
66.0
Do not know
2.7
1.7
4.2
16h. Uncertainty regarding loan
reimbursement from SBA in
cases of borrower bankruptcy,
business closing, or death
Very challenging
11.9
9.7
14.1
Moderately challenging
13.6
11.2
16.0
Somewhat challenging
20.5
17.7
23.3
Not at all challenging
35.7
32.3
39.1
Do not know
18.3
15.6
20.9
Source: GAO. | GAO-21-577
Appendix II: Results from Survey of Paycheck
Protection Program Lenders
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Table 21: Considering the information provided by SBA for the PPP loan guarantees that were available on or after January
11, 2021, how helpful to your organization was the information about the loan approval process (e.g., interim final rules,
FAQs, training)? (Question 17)
Responses
Estimated
percentage
95 percent confidence interval—
lower bound (percentage)
95 percent confidence interval—
upper bound (percentage)
Very helpful
21.2
18.3
24.0
Moderately helpful
39.8
36.4
43.2
Somewhat helpful
32.4
29.1
35.7
Not helpful
4.9
3.5
6.7
Do not know
1.7
0.9
2.9
Source: GAO. | GAO-21-577
Table 22: How helpful was the information provided by SBA for the loan guarantees that became available on or after January
11, 2021, compared to the information SBA provided on funding available through August 8, 2020? (Question 18)
Responses
Estimated
percentage
95 percent confidence interval—
lower bound (percentage)
95 percent confidence interval—
upper bound (percentage)
Much more helpful
24.5
21.5
27.4
Slightly more helpful
38.6
35.1
42.0
Similarly helpful
27.8
24.7
30.9
Slightly less helpful
3.9
2.6
5.6
Much less helpful
2.0
1.2
3.3
Do not know
3.3
2.2
4.8
Source: GAO. | GAO-21-577
Table 23: How have the costs to your organization of participating in PPP differed from expectations when your organization
began participating in the program? (Question 21)
Responses
Estimated
percentage
95 percent confidence interval—
lower bound (percentage)
95 percent confidence interval—
upper bound (percentage)
Much higher
11.5
9.3
13.7
Higher
30.0
26.9
33.2
As expected
47.3
43.8
50.8
Lower
3.1
2.0
4.8
Much lower
1.0
0.4
2.1
Do not know
7.1
5.4
9.1
Source: GAO. | GAO-21-577
Appendix III: Key Paycheck Protection
Program Implementation Decisions
Page 74
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The CARES Act and related statutes have authorized approximately $814
billion in commitment authority for the Paycheck Protection Program
(PPP) under the Small Business Administration’s (SBA) 7(a) small
business lending program. Congress substantially outlined the structure
for PPP in the CARES Act and subsequent legislation, but it left key
policy decisions for SBA and the Department of the Treasury (Treasury).
To date, SBA and Treasury have posted approximately 30 interim final
rules implementing the PPP program, along with a number of guidance
documents, lender and borrower forms, and educational materials. The
agencies’ implementation decisions have affected both borrowers and
lenders, and SBA and Treasury have periodically adjusted these
decisions in response to new legislation since the CARES Act was
passed. See table 24 for a summary of these decisions.
Table 24: Key SBA or Treasury Implementation Decisions for Paycheck Protection Program
Provision
Statutory terms
Implemented terms
Interest rate
CARES Act: Not more than 4 percent
1 percent
Maturity period
CARES Act: Maximum of 10 years from
date of forgiveness application
2 years
Subsequent provisions: Not less than 5
years
5 years
Loan usage – nonpayroll costs
CARES Act: No applicable language
Not more than 25 percent nonpayroll costs
Subsequent provisions: Not more than 40
percent of nonpayroll costs
Not more than 40 percent nonpayroll costs
Deferment period
CARES Act: Not less than 6 months and
not more than 1 year
6 months
Subsequent provisions: The day when the
loan forgiveness amount is remitted to the
lender, as long as the borrower applies for
forgiveness within 10 months of the end of
the covered perioda
The day when the loan forgiveness amount is
remitted to the lender, as long as the
borrower applies for forgiveness within 10
months of the end of the covered period
Approved lenders
CARES Act: 7(a) lenders plus additional
lenders deemed to have the necessary
qualifications to process, close, disburse,
and service PPP loans
Any qualified federally insured depository
institution or credit union, any Farm Credit
System institution, and any other depository
or nondepository lender that met criteria such
as maintaining a formalized compliance
program, applying the Bank Secrecy Act
requirements of an equivalent federally
regulated financial institution, and handling
over a certain amount of business loans or
other commercial financial receivables
Expanded borrowers
CARES Act: Expanded eligibility to
business types typically not covered by the
7(a) program
Opened PPP applications to both typical 7(a)
borrowers and expanded category borrowers
Appendix III: Key Paycheck Protection
Program Implementation Decisions
Appendix III: Key Paycheck Protection
Program Implementation Decisions
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Provision
Statutory terms
Implemented terms
Subsequent provisions: Further expanded
PPP borrower eligibility to new business
types and businesses owned by owners
typically disqualified from 7(a)
Further expanded eligibility in
acknowledgement of statutory changes
Loans to underserved borrowers
CARES Act: Sense of the Senate
provision that SBA should issue guidance
to lenders to ensure that the processing
and disbursement of PPP loans prioritized
small business concerns and entities in
underserved and rural markets
Program set up as first-come, first-served; a
June 2020 letter asked lenders to “redouble”
efforts to assist borrowers from these
communities
Subsequent provisions: $60 billion in funds
set aside for small lenders and community
financial institutions
All PPP applications must include a means
by which a borrower can choose to submit
their demographic information
Of this amount, $10 billion in funds
specifically set aside for community
development financial institutions
Beginning in early January 2021, all PPP
borrower applications have included an
optional demographic information section
Legend: PPP = Paycheck Protection Program; SBA = Small Business Administration; Treasury = Department of the Treasury
Source: GAO analyses. | GAO-21-577
aThe “covered period” is the period following receipt of a PPP loan during which borrowers can spend
the loan proceeds on covered expenses. The covered period begins on the date a lender disburses
the loan and ends on a date selected by the borrower during the period between 8 and 24 weeks
after disbursement.
Interest rate. The CARES Act set the interest rate for PPP loans at no
more than 4 percent.1 In its first interim final rule, originally posted to
SBA’s website on April 2, 2020, SBA set the interest rate for PPP loans at
1 percent.2 SBA stated that, in consultation with Treasury, it determined
that a 1 percent interest rate was appropriate because it provides low-
cost funds to borrowers while providing an attractive interest rate to
lenders. According to the rule, the interest rate on PPP loans exceeded
comparable rates offered by certificate of deposit products and Treasury
securities of comparable maturity.3 SBA also stated that the interest rate,
when considered together with the 100 percent SBA loan guarantee and
the loan-processing fee, should “provide ample inducement for lenders to
participate in the PPP.”
1Pub. L. No. 116-136, § 1102(a), 134 Stat. 281, 291 (2020) (codified at 15 U.S.C. §
636(a)(36)(L)).
285 Fed. Reg. 20,811, 20,813, 20,816 (Apr. 15, 2020).
3At the time of SBA’s analysis, the maturity for PPP loans was 2 years.
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Program Implementation Decisions
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Maturity. The CARES Act set the maximum maturity for PPP loans at no
more than 10 years.4 In its first interim final rule, SBA set the maturity at 2
years.5 In the rule, SBA stated that, in consultation with Treasury, it
determined that a 2-year loan term was sufficient “in light of the temporary
economic dislocations caused by the coronavirus.” Specifically, SBA
stated that since it expected the economic disruption to abate well before
the 2-year maturity date, such borrowers would be able to recommence
operations and pay off any unforgiven outstanding balances within that
period.
Enacted on June 5, 2020, the Paycheck Protection Program Flexibility Act
of 2020 amended the Small Business Act to require a minimum maturity
of 5 years for PPP loans.6 In mid-June 2020, SBA posted an interim final
rule amending the first PPP interim final rule to incorporate those
changes.7 In the June 2020 rule, SBA set the maturity for all PPP loans
made on or after June 5, 2020, as 5 years. In setting the new loan term,
SBA repeated its rationale for the original 2-year maturity. The rule also
stated that borrowers and lenders may mutually agree to extend the
maturity of loans made before June 5, 2020, from 2 years to 5 years. SBA
stated that it would use the date that SBA assigns a loan number to the
PPP loan for determining when the loan was made because it provides
“an efficient, transparent, and auditable” standard. On June 25, 2020,
SBA posted an answer to its PPP frequently asked questions that
reiterated the updated maturity date terms and said the promissory note
for the PPP loan would state the term of the loan.8
Loan usage. Under the CARES Act, PPP loans may be used for both
payroll costs and certain other purposes.9 In its first interim final rule, SBA
4Pub. L. No. 116-136, § 1102(a), 134 Stat. 281, 291 (2020) (codified as amended at 15
U.S.C. § 636(a)(36)(K)).
585 Fed. Reg. 20,811, 20,813 (Apr. 15, 2020).
6Pub. L. No. 116-142, § 2, 134 Stat. 641 (2020) (codified as amended at 15 U.S.C. §
636(a)(36)(K)).
785 Fed. Reg. 36,308, 36,310 (June 16, 2020).
8Small Business Administration, Paycheck Protection Program Loans, Frequently Asked
Questions, question 49 (2020), https://www.sba.gov/document/support-faq-ppp-
borrowers-lenders.
9Pub. L. No. 116-136, § 1102(a), 134 Stat. 281, 290 (2020) (codified as amended at 15
U.S.C. § 636(a)(36)(F)).
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Program Implementation Decisions
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required that no more than 25 percent of the PPP loan forgiveness
amount be attributable to nonpayroll costs.10 The Paycheck Protection
Program Flexibility Act modified this limit to 40 percent, and SBA
subsequently amended its rule to reflect this change.11 In implementing
this change, SBA interpreted the new requirement as a proportional limit
on loan forgiveness rather than a bright-line threshold, because it found
that treating the requirement as such a threshold would be contrary to the
intent of the statutory change. Subsequent legislation has expanded
forgivable nonpayroll costs for PPP loans (for example, to include
categories such as covered property damage costs and worker protection
expenditures).12
Deferment period. The CARES Act required SBA to instruct lenders to
provide a deferment period on PPP loan payments of no less than 6
months and no more than 1 year.13 In its first interim final rule, SBA
instituted a 6-month deferment period, stating this period was appropriate
in light of the modest 1 percent interest rate and the PPP loan forgiveness
provisions.14 In June 2020, Congress amended the PPP deferment period
in the Paycheck Protection Program Flexibility Act.15 Under the amended
terms, borrowers do not have to begin making payments until the date on
which the determined forgiveness amount is remitted to the lender, as
long as they apply for forgiveness within 10 months after the last day of
their PPP loan’s covered period. Congress made the modified deferral
1085 Fed. Reg. 20,811, 20,813-14 (Apr. 15, 2020). Nonpayroll costs include categories
such as rent, utilities, and mortgage interest. See 15 U.S.C. § 636(a)(36)(F); 86 Fed Reg.
3692, 3702-05, (Jan. 14, 2021); 86 Fed. Reg. 13,149 (Mar. 8, 2021); 86 Fed. Reg. 15,083
(Mar. 22, 2021).
11Pub. L. No. 116-142, § 3, 134 Stat. 641, 642 (2020) (codified as amended at 15 U.S.C. §
636m(d)(8)); 85 Fed. Reg. 36,308, 36,310-11 (June 16, 2020).
12Pub. L. No. 116-260, div. N, tit. III, § 304(a), 134 Stat. 1182, 1993 (2020) (codified as
amended at 15 U.S.C. § 636(a)(36)(F)(i)); 86 Fed. Reg. 8283, 8286-87 (Feb. 5, 2021).
13Pub. L. No. 116-136, § 1102(a), 134 Stat. 281, 292 (2020) (codified as amended at 15
U.S.C. § 636(a)(36)(M)).
1485 Fed. Reg. 20,811, 20,813 (Apr. 15, 2020).
15Pub. L. No. 116-142, § 3(c), 134 Stat. 641, 642-43 (2020).
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Program Implementation Decisions
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GAO-21-577 Paycheck Protection Program
period applicable to both new and existing PPP loans.16 SBA updated its
interim final rules in June 2020 implementing these revisions.17
Expansion of SBA approved lenders. Under the CARES Act, lenders
already approved for the 7(a) program were automatically approved to
make PPP loans on a delegated basis.18 The CARES Act also permitted
SBA and Treasury to jointly extend delegated authority to additional
lenders deemed to have the necessary qualifications to process, close,
disburse, and service PPP loans.19 In the first interim final rule, SBA and
Treasury announced that approving additional lenders was necessary to
achieve program goals.20 As a result, the agencies opened the program
to applications from any qualified federally insured depository institution
or credit union, Farm Credit System institution, and other depository or
non-depository lender that met the criteria. These criteria included
maintaining a formalized compliance program, applying the Bank Secrecy
Act requirements of an equivalent federally regulated financial institution,
and handling over a certain amount of business loans or other
commercial financial receivables. According to SBA officials, of the
approximately 5,500 lenders that made PPP loans, about 14 percent
(about 800) were not previous SBA lenders.
Increased borrower eligibility. While the CARES Act established PPP
as part of SBA’s 7(a) lending program, it notably extended eligibility for
PPP to borrowers typically outside of the 7(a) program’s scope. These
nontypical borrowers included certain nonprofit organizations, veterans’
organizations, independent contractors, and self-employed individuals.21
In addition, the CARES Act waived the application of certain SBA
affiliation rules for accommodation and food services sector borrowers
16Id. at § 3(d).
1785 Fed. Reg. 36,308, 36,310 (June 16, 2020); 85 Fed. Reg. 38,304, 38,306 (June 26,
2020).
18Pub. L. No. 116-136, § 1102(a), 134 Stat. 281, 290 (2020) (codified at 15 U.S.C. §
636(a)(36)(F)(ii)-(iii)).
19Id.
2085 Fed. Reg. 20,811, 20,815 (Apr. 15, 2020).
21Pub. L. No. 116-136, § 1102(a), 134 Stat. 281, 288-89 (2020) (codified as amended at
15 U.S.C. § 636(a)(36)(D)).
Appendix III: Key Paycheck Protection
Program Implementation Decisions
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with no more than 500 employees per physical location.22 SBA
implemented this expanded eligibility in its first interim final rule, and
released additional interim final rules further clarifying eligibility for
borrowers such as faith-based organizations, certain utility cooperatives,
seasonal employers, businesses owned by persons with criminal history
records, and businesses owned by persons with delinquent student loan
debt.23 Subsequent legislation has further expanded the list of PPP-
eligible borrowers and SBA has updated its interim final rules to
acknowledge these changes.24
PPP loans to underserved borrowers. The CARES Act included a
Sense of the Senate statement that SBA should issue guidance to
lenders and agents to ensure that the processing and disbursement of
PPP loans prioritized small business concerns and entities in
underserved and rural markets, including veterans and members of the
military community, small business concerns owned and controlled by
socially and economically disadvantaged individuals, and businesses in
operation for less than 2 years.25 In its first interim final rule, SBA stated
that PPP was “first-come, first-served,” without making allowances for
borrowers specified in the Sense of the Senate statement.26 As we
reported in September 2020, SBA did not ask for demographic
information in the initial PPP loan application, and did not revise its
application to do so in response to a May 2020 SBA Office of Inspector
22Id. This waiver of affiliation rules allows eligible small businesses, such as certain
restaurants and hotels, to receive a PPP loan even though their ownership or connection
to larger brands usually would render them ineligible for 7(a) program assistance.
23See e.g., 85 Fed. Reg. 20,811 (Apr. 15, 2020); 85 Fed. Reg. 21,747 (Apr. 20, 2020); 85
Fed. Reg. 23,450 (Apr. 28, 2020); 85 Fed. Reg. 23,917 (Apr. 30, 2020); 85 Fed. Reg.
27,287 (May 8, 2020); 85 Fed. Reg. 29,847 (May 19, 2020); 85 Fed. Reg. 30,835 (May
21, 2020); 85 Fed. Reg. 35,550 (June 8, 2020); 86 Fed. Reg. 13,149 (Mar. 8, 2021). See
also 86 Fed. Reg. 3692 (Jan. 14, 2021); 86 Fed. Reg. 15,083 (Mar. 22, 2021).
24Pub. L. No. 117-2, tit. V, § 5001, 135 Stat. 4, 81 (2021); 86 Fed. Reg. 3692 (Jan. 14,
2021); 86 Fed. Reg. 13,149 (Mar. 8, 2021); 86 Fed. Reg. 15,083 (Mar. 22, 2021).
25Pub. L. No. 116-136, § 1102(a), 134 Stat. 281, 293 (2020) (codified at 15 U.S.C. §
636(a)(36)(P)(iv)).
2685 Fed. Reg. 20,811, 20,813 (Apr. 15, 2020).
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Program Implementation Decisions
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General recommendation that it do so.27 At that time, SBA officials stated
that the agency did not revise the borrower application to collect such
information in an effort to streamline the application process. However,
SBA included an optional demographic information form as part of the
PPP loan forgiveness application.
In the Paycheck Protection Program and Health Care Enhancement Act,
Congress allocated a total of $60 billion in additional PPP funding
specifically for certain small depository institutions, credit unions, or
community financial institutions to make PPP loans.28 On May 28, 2020,
SBA and Treasury further announced that $10 billion in PPP funding
would be set aside explicitly for community development financial
institutions.29
In June 2020, SBA released a letter asking lenders to “redouble” their
efforts to assist eligible borrowers in underserved and disadvantaged
communities.30 Additionally, in January 2021, SBA released specific
guidance on accessing capital for minority, underserved, veteran, and
women-owned businesses.31 The Consolidated Appropriations Act, 2021,
included a provision that all future PPP applications include a means by
which the applicant may, at their discretion, submit demographic
information including sex, race, ethnicity, and veteran status of the
owner.32 SBA revised its PPP borrower application form in January 2021
to allow for the optional disclosure of demographic information, and it has
included such a section in all subsequent revisions.
27GAO, COVID-19: Federal Efforts Could Be Strengthened by Timely and Concerted
Actions, GAO-20-701 (Washington, D.C.: Sept. 21, 2020); Small Business Administration,
Office of Inspector General, Small Business Administration’s Implementation of the
Paycheck Protection Program Requirements, Report No. 20-14 (Washington, D.C.: May 8,
2020).
28Pub. L. No. 116-139, § 101(d), 134 Stat. 620, 621-22 (2020).
29Small Business Administration, Press Release No. 20-42, SBA and Treasury
Department Announce $10 Billion for CDFIs to Participate in the Paycheck Protection
Program (May 28, 2020), https://www.sba.gov/article/2020/may/28/sba-treasury-
department-announce-10-billion-cdfis-participate-paycheck-protection-program.
30Small Business Administration, SBA Administrator Message to Lenders re: Underserved
Communities (June 15, 2020).
31Small Business Administration, Guidance on Accessing Capital for Minority,
Underserved, Veteran and Women-Owned Business Concerns (Jan. 6, 2021).
32Pub. L. No. 116-260, div. N, tit. III, § 309, 134 Stat. 1182, 2000 (2020).
Appendix IV: Comparison of Paycheck
Protection Program Processes with Guidance
for Managing Credit Programs
Page 81
GAO-21-577 Paycheck Protection Program
We compared the Small Business Administration’s (SBA) processes for
managing elements of the Paycheck Protection Program (PPP) against
government-wide guidance for the management and operation of federal
credit programs in the Office of Management and Budget’s (OMB)
Circular A-129.1 See appendix I for more information on our methodology.
We focused our comparison on consistency with four standards in the
OMB guidance: applicant screening, loan documentation and collateral,
managing lenders and servicers, and credit program management. For
each standard, we assessed whether it was applicable to PPP, and if so,
whether SBA’s processes, as described in related rules, guidance,
policies, and procedures, were consistent with the selected standard. In
some instances, the provisions of the CARES Act or other legislation
prevented full compliance with the standard, so we adjusted our ratings
accordingly, assessing whether SBA processes were consistent with
standards to the extent practicable given the limitations or waivers
imposed in legislation.
We determined that SBA processes were consistent to the extent
practicable with standards for applicant screening, consistent to the
extent practicable with standards for loan documentation and collateral,
partially consistent with standards for managing lenders and servicers,
and partially consistent with standards for credit program management.
Table 25 summarizes the results of our comparison.
Table 25: Consistency of Small Business Administration (SBA) Processes with Selected Office of Management and Budget
(OMB) Standards
OMB Circular A-129
topic areas and
description
Assessment
Standard
Observations
Applicant screening:
Determining an
applicant’s eligibility
and creditworthiness
for a loan
Consistent to
the extent
practicable
Lender must determine the applicant’s
program eligibility, and applicants must
certify and document their inability to
obtain credit from private sources on
reasonable terms and certify the accuracy
of information in the application.
Lenders collect borrower certifications and
support to determine eligibility.
Borrower eligibility is primarily dependent on
the borrower’s business type, size, payroll,
length of time in existence, and certification
of economic necessity.
The “credit elsewhere” test is waived by the
CARES Act.
1Office of Management and Budget, Policies for Federal Credit Programs and Non-Tax
Receivables, OMB Circular No. A-129 (Washington, D.C.: January 2013).
Appendix IV: Comparison of Paycheck
Protection Program Processes with
Guidance for Managing Credit Programs
Appendix IV: Comparison of Paycheck
Protection Program Processes with Guidance
for Managing Credit Programs
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GAO-21-577 Paycheck Protection Program
OMB Circular A-129
topic areas and
description
Assessment
Standard
Observations
Lender should determine whether an
applicant is delinquent on federal debt,
suspend application processing for those
who are delinquent, and continue
application processing only when the debt
is satisfactorily resolved.
Borrower application forms include a
certification that the applicant is not
delinquent on federal debt.
Where creditworthiness is a criterion for
loan approval, lender must determine
whether the applicant has the ability to
repay the loan, considering credit reports
and supplementary data sources.
When considering borrower eligibility,
lenders do not need to determine whether
the borrower has the ability to repay a
Paycheck Protection Program (PPP) loan.
Agency must obtain the taxpayer
identification number of applicants.
Borrowers must provide a taxpayer
identification number.
Loan documentation
and collateral:
Maintaining files
containing key
information used in
underwriting, and
collateral requirements
Consistent to
the extent
practicable
Loan origination file should contain loan
applications, credit bureau reports, credit
analyses, loan contracts, and other
documents necessary to conform to
private sector standards for that type of
loan.
SBA requires lenders to retain in the loan
file the borrower application and supporting
documentation.
Permissible variation in eligible borrower
characteristics and related supporting
documents limits ability to specify precise
contents of loan files.
Agency should require property appraisals
to be consistent with the Uniform
Standards of Professional Appraisal
Practice and generally be prepared by a
licensed or certified appraiser.
The CARES Act states no personal
guarantee or collateral are required for PPP
loans.
Agency should explicitly define the
components of the loan-to-value ratio.
The CARES Act states no personal
guarantee or collateral are required for PPP
loans.
Loan maturity period should be shorter
than the estimated useful economic life of
the collateral.
The CARES Act states no personal
guarantee or collateral are required for PPP
loans.
Lenders should be required to liquidate
any real property collateral for a defaulted
guaranteed loan before filing a claim.
The CARES Act states no personal
guarantee or collateral are required for PPP
loans.
Agency should establish policies,
procedures, and cost tracking systems for
the acquisition, management, and disposal
of real property.
The CARES Act states no personal
guarantee or collateral are required for PPP
loans.
Appendix IV: Comparison of Paycheck
Protection Program Processes with Guidance
for Managing Credit Programs
Page 83
GAO-21-577 Paycheck Protection Program
OMB Circular A-129
topic areas and
description
Assessment
Standard
Observations
Managing lenders
and servicers:
Standards for lender
and servicer eligibility,
monitoring, recertification,
and reporting
Partially
consistent
Agency should establish and publish in the
Federal Register lender and servicer
eligibility criteria, including requirements
that the lender or servicer not be debarred
or delinquent on government debt,
qualification requirements for principal
officers and staff, appropriate bonding or
insurance, and financial and capital
requirements for lenders not supervised by
a federal financial institution regulator.
SBA interim final rules for PPP are
published in the Federal Register and
include lender and servicer eligibility criteria.
Agency shall review and document a
lender or servicer’s eligibility for continued
participation at least every 2 years.
SBA will include lenders with post-
forgiveness portfolios of PPP loans in 2-year
review cycles, and existing 7(a) lenders
participating in PPP are reviewed via the
normal 7(a) lender review process.
Agency should establish specific
procedures to decertify lenders, end
servicing contracts, or take other
appropriate action for not meeting
compliance or eligibility standards.
SBA loan review procedures include an
aggregate review process that may help
identify lender noncompliance, but it has yet
to be fully implemented.
Lenders must comply with the applicable
lender obligations set forth in SBA interim
final rules, but will be held harmless for
borrowers’ failure to comply with program
criteria and will not be subject to any
enforcement action or penalty relating to
loan origination or forgiveness of the PPP
loan if the lender acts in good faith relating
to the origination or forgiveness of the PPP
loan and satisfies all other applicable
federal, state, local, and other statutory or
regulatory requirements.
Agency should enter into written
agreements with lenders and servicers
that include participation requirements and
performance standards.
The lender application form includes
program rules and a certification from
lenders that they will abide by them.
Agency should ensure through the claims
review process that lenders have met
performance standards and should reduce
claim amounts or reject claims for
nonperformance.
SBA is developing a PPP-specific process
for guarantee purchase requests.
Agency should collect and maintain data
from lenders and servicers to monitor the
health of its credit portfolio and track and
evaluate lender and servicer performance.
Lenders must report the status of loans via
the monthly 1502 reporting process.
Appendix IV: Comparison of Paycheck
Protection Program Processes with Guidance
for Managing Credit Programs
Page 84
GAO-21-577 Paycheck Protection Program
OMB Circular A-129
topic areas and
description
Assessment
Standard
Observations
Agency should conduct on-site lender and
servicer reviews—prioritizing such reviews
based on performance and exposure—and
summarize review findings in written
reports with recommended corrective
actions.
SBA will include lenders with post-
forgiveness portfolios of PPP loans in 2-year
review cycles, and existing 7(a) lenders
participating in PPP are reviewed via the
normal 7(a) lender review process.
Agency should establish penalties for
serious and frequent offenses.
Lenders must comply with the applicable
lender obligations set forth in SBA interim
final rules, but will be held harmless for
borrowers’ failure to comply with program
criteria and will not be subject to any
enforcement action or penalty relating to
loan origination or forgiveness of the PPP
loan if the lender acts in good faith relating
to the origination or forgiveness of the PPP
loan and satisfies all other applicable
federal, state, local, and other statutory or
regulatory requirements.
If found guilty of fraud in connection with a
PPP loan, the lender is required to repay its
processing fee for the loan to SBA, and the
loan is not eligible for a guarantee.
Credit program
management:
Standards addressing
various aspects of credit
program management,
including lines of authority
and communication,
performance and risk
indicators, and reporting
mechanisms
Partially
consistent
Agency should establish and periodically
review appropriate performance and other
indicators for the program and establish
risk thresholds to balance policy goals with
risks and costs to the taxpayer.
SBA collects and reviews performance data,
such as the number and dollar amount of
loans approved and forgiven.
Agencies should separate critical program
functions, as appropriate; retain inherently
governmental functions and establish
agreements to ensure appropriate
contractor oversight when outsourcing
functions; and establish and document a
policy for communications with credit
counterparties and other stakeholders for
periods when an agency decision on credit
support is pending.
SBA has a process for communicating with
lenders while decisions concerning credit
support are pending, but has not provided
timely responses to some lenders.
High-level credit performance data should
be supplied to the appropriate senior-level
official with primary responsibility for the
program on at least a quarterly basis.
SBA’s loan review plan includes daily,
weekly, and other periodic reporting of
collected relevant data to SBA leadership.
Source: GAO analysis of OMB and SBA documents. | GAO-21-577
Appendix V: Comments from the Small
Business Administration
Page 85
GAO-21-577 Paycheck Protection Program
Appendix V: Comments from the Small
Business Administration
Appendix V: Comments from the Small
Business Administration
Page 86
GAO-21-577 Paycheck Protection Program
Appendix V: Comments from the Small
Business Administration
Page 87
GAO-21-577 Paycheck Protection Program
Page 88
GAO-21-577 Paycheck Protection Program
William B. Shear at (202) 512-8678 or shearw@gao.gov
In addition to the contact named above, Paige Smith (Assistant Director),
Daniel Newman (Analyst in Charge), James Ashley, Vida Awumey, Carl
Barden, Marcia Carlsen, Irina Carnevale, Jacob Fender, Dan Flavin,
Tonita Gillich, Chir-Jen Huang, Christopher Klemmer, Jill Lacey, Ying
Long, Bryan Prince, Rhonda Rose, Christopher Ross, Paras Sharma,
Rebecca Shea, Jena Sinkfield, Shenandoah Sowash, Tyler Spunaugle,
and Ariel Vega made key contributions to this report.
Appendix VI: GAO Contact and Staff
Acknowledgments
GAO Contact
Staff
Acknowledgments
(104358)
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