While the second round of the Paycheck Protection Program has given small businesses another opportunity to seek funding, it has also met with more scrutiny at both the state and federal level.
A “flash report” released on May 8 by the U.S. Small Business Administration’s Office of the Inspector General identified several areas where the PPP did not meet the requirements of the CARES Act. The report followed a May 6 letter sent to congressional leadership by Massachusetts Attorney General Maura Healey and more than 20 other attorneys general pointing out issues with the PPP and requesting updates to the program.
The PPP was created by the CARES Act and launched a week later, on April 3. The SBA’s Office of the Inspector General, led by Hannibal “Mike” Ware, found that the PPP’s interim final rule satisfied most of the CARES Act’s requirements.
One area that did not align with the CARES Act requirements has been criticized by small businesses and community advocates since the early days of the program: prioritizing underserved and rural markets. The CARES Act specified that the SBA should issue guidance on ensuring small businesses in these markets, including veteran- and women-owned businesses and entities owned by socially and economically disadvantaged individuals, receive loans.
Instead, the SBA confirmed in the interim final rule that lenders should work on a “first-come, first-served” basis.
“Because SBA did not provide guidance to lenders about prioritizing borrowers in underserved and rural markets, these borrowers, including rural, minority and women-owned businesses may not have received the loans as intended,” the OIG wrote in the report. “In addition, because SBA did not require demographic data to identify PPP borrowers in underserved markets, it is unlikely that SBA will be able to determine the loan volume to the intended prioritized markets.”
Along with recommending that the SBA issue new guidance to lenders, the OIG also said the SBA should revise its application to collect demographic information and collect the information during the loan forgiveness process.
The OIG also pointed out that the requirements to use 75 percent of the loan toward payroll costs and to repay the loan in two years were stricter than guidelines set by the CARES Act. The OIG pointed out that the PPP’s requirements could burden small businesses. The report recommended that the SBA evaluate negative impacts of these requirements on small businesses and possibly update the guidelines for forgiveness.
The OIG also noted that the interim final rule lacked guidance for lenders and small business on the payment deferral process and recommended issuing guidance. The loans were also supposed to be registered under the borrower’s tax identification number, and the OIG found no evidence this had happened.
Two dozen attorneys general, led by Healey, are also looking for changes to the PPP. In the letter sent to congressional leadership on May 6, the attorneys general criticized a “notable lack of transparency, technical savvy and functionality” in the program.
Moving forward, they said, the Small Business Administration should prohibit publicly traded companies that can access other funding from seeking PPP loans, work to ensure fair access and fair distribution and boost its communication with small businesses that could be served by the aid.
“We’ve been listening to small businesses all across Massachusetts who have called our office with problems they’ve encountered in trying to secure loans from this program,” Healey said in a press release. “Congress must take action to ensure that this money gets in the hands of our most vulnerable businesses and hardest hit workers.”
State House News Service contributed to this report.
