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Allison M. O'Neil
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allison.oneil@lockelord.com
August 31, 2022
VIA EMAIL ONLY TO CCs
Hon. James E. Clyburn, Chairman
Select Subcommittee on the Coronavirus Crisis
United States House of Representatives
2157 Rayburn House Office Building
Washington, D.C. 20515
Re: Response to July 1, 2022 Letter
Dear Chairman Clyburn:
As you know, Locke Lord LLP represents Harvest Small Business Finance, LLC (“Harvest”) in
connection with its response to the Subcommittee’s letter of July 1, 2022. We are writing to
respond to Information Request Nos. 2 and 4-6. Furthermore, we write to inform you that we plan
to produce additional responsive documents tomorrow, September 1, and will continue rolling
productions thereafter, pursuant to our discussions with Laura O’Neill.
2. In what way and to what extend did Harvest rely on the automatic checks, Know Your
Customer (KYC) management, bank and tax document analysis, and anti-fraud measures
undertaken by Womply when determining whether Harvest would submit a PPP loan
application to the Small Business Administration (SBA) for approval and funding?
As Harvest explained in its August 2, 2022 letter providing its response to Information Request
No. 1, in order to meet the increased demand for PPP loans created by the expansion of the changes
made to the PPP Program in 2021, as well as meet Congress’ and the SBA’s goal of “provid[ing]
relief to small businesses and their employees and expand[ing] access to the PPP” (86 Fed. Reg.
13,154 (Mar. 8, 2021), Harvest entered into a contractual relationship with Oto Analytics, Inc.
d/b/a Womply (“Womply”) whereby Womply acted as a “Referral Agent” and simultaneously
provided the use of its technology platform, known as “Fastlane,” to expedite the processing of
loan applications and refer complete applications from eligible borrowers to Harvest.
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The Honorable James E. Clyburn
August 31, 2022
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Womply demonstrated that its process met the Program’s requirements. Womply indicated that it
was working directly with Bill Briggs, head of the Paycheck Protection Program at the SBA, to
ensure the Fastlane program was meeting all of the SBA’s requirements. In addition, Womply
assured Harvest that it would only refer to Harvest complete applications that Womply’s platform
had confirmed were for eligible borrowers. Womply, both to Harvest and publicly, represented it
was capable of performing this service because of its close association with the SBA.1
Notwithstanding Womply’s assurances and the SBA’s apparent endorsement of Womply’s
platform, Harvest still performed its own reviews of many applications it received from Womply
to ensure borrower eligibility and to identify potentially fraudulent applications. At the inception
of Harvest’s relationship with Womply, Harvest’s processors and management reviewed a sample
set of each batch of loans Harvest submitted to the SBA for review and approval to ensure that the
documents required by the SBA were included in the applications it was receiving.
Harvest also identified “patterns” of ineligible or potentially fraudulent applicants and
applications. For instance, during its manual review of loan files, Harvest became aware that
applications were being submitted with Employer Identification Numbers (“EIN”) that did not
match the stated year of formation of the applicant business. Harvest then identified applications
containing this discrepancy, stopped those applications from being processed if they had not
already been submitted or funded, and alerted the SBA Office of Inspector General (“OIG”) (the
law enforcement arm of the SBA, Harvest’s regulator) to the potential ineligibility and/or fraud.
Harvest estimates that it identified thousands of potentially fraudulent applications based on its
searches for these kinds of patterns and either canceled or declined them before funding, or
immediately alerted the SBA if the application had already been submitted for approval.
In fact, Harvest believes that it identified and reported more ineligible and/or fraudulent
applications than if it had simply been performing a manual review of loan applications without
identifying and investigating these patterns and connections. Because of the emergency nature of
the Program, the minimal documentation required by the SBA for Schedule C borrowers, and the
fact that many of the leading indicators of ineligibility and fraud, such as multiple applications
fraudulently submitted by the same applicant, were only evident when reviewed in hindsight
and/or through the high-level business analytics, even a careful, real-time review of each document
submitted with a single application would not always indicate that a borrower may be ineligible or
an application may be fraudulent. Thus, Harvest (while processing the high volume of Fastlane
applications and adhering to evolving guidance revisions from the SBA) searched for and
investigated indicia of fraud by reviewing certain groups of loans in the aggregate.
1
See PPP Launch- FAQ’s with the SBA for Contract workers, https://www.youtube.com/watch?v=mt8VQXSNCIE
(Jan. 19, 2021); PPP Launch – FAQ’s with the SBA for Small Businesses,
https://www.youtube.com/watch?v=DtLAiNbpEes (Jan. 19, 2021).
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The Honorable James E. Clyburn
August 31, 2022
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4. For the below questions, unless otherwise instructed, please provide answers
corresponding to the 2021 fiscal year. If necessary to fully answer the below questions,
please include information related to parent, holding, and other related entities.
a. What was the processing fee income generated from Harvest’s participation in the
PPP?
Lenders’ fees for processing PPP loans were prescribed by the SBA. Pursuant to SBA Procedural
Notices 5000-20036 and 2000-20091, for first draw PPP loans processed before December 27,
2020, the SBA paid lenders fees in the following amounts:
“Five (5) percent for loans of not more than $350,000;
Three (3) percent for loans of more than $350,000 and less than $2,000,000; and
One (1) percent for loans of at least $2,000,000.”
After December 27, 2020, the SBA paid lenders the following amounts for processing first draw
PPP loans:
“Fifty (50) percent or $2,500, whichever is less, for loans of not more than $50,000;
Five (5) percent for loans of more than $50,000 and not more than $350,000;
Three (3) percent for loans of more than $350,000 and less than $2,000,000; and
One (1) percent for loans of at least $2,000,000.”
Finally, the SBA paid lenders fees for processing all second draw PPP loans in the following
amounts:
“Fifty (50) percent or $2,500, whichever is less, for loans of not more than $50,000;
Five (5) percent for loans of more than $50,000 and not more than $350,000; and
Three (3) percent for loans above $350,000.”
SBA Procedural Notice No. 5000-20091. “Under 15 U.S.C. § 636(a)(36)(P) and 15 U.S.C. §
636(a)(37)(L), all processing fees [were] based on the balance of the PPP loan outstanding at the
time of full disbursement of the loan.”
Based on the above statutory rate structure, Harvest ultimately retained $319,282,668.92 in fees
from the SBA in Fiscal Year (“FY”) 2021. SBA paid Harvest $1,074,907,943.72 in fees from the
SBA for PPP loans for which it was the lender, and, based on its contractual agreement with
Womply, a majority of those fees were paid to Womply for the services it provided to Harvest.
b. What was Harvest’s total revenue from operations? How did this compare to the
2020 fiscal year?
Based on the U.S. Partnership Income Tax Return (Form 1065) for the tax year 2021, Harvest’s
gross receipts were $1,165,328,948. Based on the U.S. Partnership Income Tax Return (Form
1065) for the tax year 2020, Harvest’s gross receipts were $65,898,816.
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The Honorable James E. Clyburn
August 31, 2022
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The increase between FY 2020 and FY 2021 is due primarily to the fact that, beginning in January
2021, the Economic Aid Act (“EAA”) expanded PPP with the aim of providing more relief to
borrowers that may have been unable to take advantage of the Program in 2020, including
businesses with fewer than 20 employees, independent contractors, self-employed borrowers, and
sole proprietors, commonly referred to as “Schedule C” borrowers.2 In keeping with the goals of
the EAA these Schedule C borrowers were often otherwise ignored by the larger financial
institutions during the early rounds of funding. Thus, smaller institutions like Harvest played a
key role in providing access to PPP funds once Schedule C borrowers became eligible for the
Program.
In addition to the expansion of the Program to Schedule C borrowers, the SBA issued an IFR on
March 8, 2021, further clarifying that “a Schedule C filer may elect to calculate the owner
compensation of its payroll costs … based on either (i) net profit or (ii) gross income ….” 86 Fed.
Reg. 13,150. As a result of these changes at the beginning of 2021, more borrowers became eligible
for loans, and in some cases, loans in larger amounts3. Therefore, demand for loans from all
lenders, including Harvest, instantly and significantly increased, and Harvest was expected to
process substantially more PPP loans in order to meet the objectives of the EAA.
c. What amount of Harvest’s total revenue from operations was a result of Harvest’s
participation in the PPP?
In response to this Information Request, Harvest refers to the information provided in its response
to subpart (b), above.
d. What was Harvest’s net operating income before taxes? How did this compare to
the 2020 fiscal year?
Based on the U.S. Partnership Income Tax Return (Form 1065) for the tax year 2021, Harvest’s
ordinary business income was $356,593,726. Based on the U.S. Partnership Income Tax Return
(Form 1065) for the tax year 2020, Harvest’s ordinary business income was $29,525,892.
As discussed in response to subpart (b), above, the increase between 2020 and 2021 is due
primarily to the fact that, beginning in January 2021, the EAA expanded PPP with the aim of
providing more relief to borrowers that may have been unable to take advantage of the Program in
2020, including businesses with fewer than 20 employees, independent contractors, self-employed
borrowers, and sole proprietors, commonly referred to as “Schedule C” borrowers.4
2
Harvest’s August 2, 2022 letter further describes many of the additional changes lenders had to address with the
shift in eligibility for Schedule C borrowers in early 2021.
3
In the March 8, 2021 IFR, the SBA noted that “the use of gross income by Schedule C filers may, in some cases,
increase the risk of waste, fraud, or abuse, because it will substantially increase the maximum loan amount for relevant
applicants, and in some cases an applicant’s gross income may not accurately reflect the extent to which a PPP loan
is necessary to support the ongoing operations of the applicant’s business.”
4
Harvest’s August 2, 2022 letter further describes many of the additional changes lenders had to address with the
shift in eligibility for Schedule C borrowers in early 2021.
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The Honorable James E. Clyburn
August 31, 2022
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In addition to the expansion of the Program to Schedule C borrowers, the SBA issued an IFR on
March 8, 2021, further clarifying that “a Schedule C filer may elect to calculate the owner
compensation of its payroll costs … based on either (i) net profit or (ii) gross income ….” 86 Fed.
Reg. 13,150. As a result of these changes at the beginning of 2021, more borrowers became eligible
for loans, and in some cases, loans in larger amounts. Therefore, demand for loans from all lenders,
including Harvest instantly and significantly increased, and Harvest was expected to process
substantially more PPP loans in order to keep up with the intended aims of the EAA.
e. What were Harvest’s total operating expenses, including general administrative
expenses and salaries/wages? How did this compare to the 2020 fiscal year?
Based on the U.S. Partnership Income Tax Return (Form 1065) for the tax year 2021, Harvest’s
total deductions were $48,090,841. Based on the U.S. Partnership Income Tax Return (Form 1065)
for the tax year 2020, Harvest’s total deductions were $34,041,683.
f. What were Harvest’s operating expenses as a percentage of total revenues? How
did this compare to the 2020 fiscal year?
In response to this Information Request, Harvest refers to the information provided in its responses
to subparts (b) and (e), above.
g. What was the dollar value of employee and management bonus expense incurred
by Harvest? How did this compare to the 2020 fiscal year?
For FY 2021, Harvest incurred $1,150,000 in expenses for bonuses paid to employees. For FY
2020, Harvest incurred $59,500 in expenses for bonuses paid to employees.
5. If necessary to fully answer the below questions, please include information related to
relevant parent, holding, and other related entities.
a. How many total employees did Harvest have in 2020 and in 2021?
Harvest employed 98 people in 2020, and 119 people in 2021.
b. How many Harvest employees were dedicated full time and exclusively to AML,
BSA, eligibility verification, or fraud compliance, including those employed full
time to prevent, detect, or investigate potential fraud, broken up month by month,
from January 2019 to October 2021?
All relevant Harvest employees are trained and required to follow Harvest’s policies relating to
Anti-Money Laundering (“AML), the Bank Secrecy Act (“BSA”) and detecting and preventing
fraud. At the inception of Harvest’s participation in the Program, due to the volume of applications
Harvest received, virtually every one of Harvest’s employees was dedicated to processing PPP
loan applications and detecting and preventing suspected fraud and ineligibility. Throughout this
time, Harvest’s employees were working around the clock to process as many eligible applications
as possible.
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The Honorable James E. Clyburn
August 31, 2022
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As Harvest’s participation in the Program continued, Harvest’s loan processors became the
employees primarily responsible for processing loan applications and detecting and preventing
suspected fraud and ineligibility. During the course of the Program, Harvest employed as many as
20-25 loan processors who were trained for and charged with identifying and preventing suspected
fraud and ineligibility. All of the loan processors worked with and reported to Harvest’s Fraud
Protection Manager, Harvest’s Senior Vice President, and ultimately Harvest’s Chief Operating
Officer, .
In addition to Harvest’s own employees, as explained in Harvest’s August 2, 2022 letter and above,
Harvest relied on Womply and the SBA to detect fraud and ineligibility. Womply demonstrated
that the technology it was using could meet the Program’s requirements. Womply indicated that it
was working directly with Bill Briggs, head of the Paycheck Protection Program at the SBA, to
ensure the Fastlane program was meeting all of the SBA’s requirements. In addition, Womply
assured Harvest that it would only refer to Harvest complete applications that Womply’s platform
had confirmed were for eligible borrowers. Womply, both to Harvest and publicly, represented it
was capable of performing this service because of its close association with the SBA.5
Moreover, when applications were submitted to the SBA for final review and approval, the SBA
performed its own “Compliance Checks,” and, if potential ineligibility, fraud, or abuse was
discovered by the SBA, the SBA would issue a “Hold Code,” placing the application on hold and
alerting Harvest to the potential ineligibility, fraud, or abuse. See SBA Procedural Notice No.
5000-20092, Feb. 10, 2021 (“After issuance of the SBA Loan Number, all First Draw PPP Loans
made in 2020 were individually screened by an automated tool … that may indicate non-
compliance with eligibility requirements, fraud, or abuse …. In 2021, before issuance of an SBA
loan number, SBA is conducting front-end Compliance Checks on Lender loan guaranty
applications for new First Draw PPP Loans and Second Draw PPP Loans using a modified version
of the automated screening tool and information from the Department of Treasury Do Not Pay
lists.”).
c. What were the total budgets for, and amounts allocated to, AML, BSA, eligibility
verification, and fraud compliance at Harvest in 2019, 2020, and 2021, excluding
amounts budgeted or allocated to third party contractors? Please include a
breakdown of these expenses.
Due to the speed at which Harvest was required to implement new procedures for detecting and
preventing fraud in light of the constantly-evolving rules and guidance surrounding the Program,
and the fact that for a significant period during the Program, Harvest dedicated virtually all of its
resources to processing PPP loan applications—which included detecting potential fraud and
ineligibility—Harvest did not create separate budget line items for the amounts allocated to the
activities listed in this subpart.
5
See PPP Launch- FAQ’s with the SBA for Contract workers, https://www.youtube.com/watch?v=mt8VQXSNCIE
(Jan. 19, 2021); PPP Launch – FAQ’s with the SBA for Small Businesses,
https://www.youtube.com/watch?v=DtLAiNbpEes (Jan. 19, 2021).
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