June 26, 2022

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Small-Business Owners Promised More PPP Loan Application Help

WASHINGTON—Lenders say many small businesses applying for additional help under the government’s coronavirus relief program are finding that efforts to combat fraud are throwing up obstacles to getting money they need to help stay afloat.

Now, the Small Business Administration, which runs the Paycheck Protection Program, says help is on the way.

The issue is tied to flags the Small Business Administration placed on roughly 240,000 initial PPP recipients for everything from clerical errors to indications of possible wrongdoing. Those flags are blocking lenders’ ability to move forward second loans for the borrowers, after the program reopened this month.

“If you’ve got your fraud mitigation hat on, that’s not all bad,” said

Tony Wilkinson,

chief executive of the National Association of Government Guaranteed Lenders trade group. “But some of these businesses are hanging on by a thread and some of them needed the money yesterday.” Mr. Wilkinson said some of the flags are related to errors with basic data entry.

The SBA says it is working to remove the roadblocks. It is holding a national call Tuesday afternoon to help participating PPP lenders understand how to resolve the flags.

The agency also plans to issue additional guidance to lenders, and it is telling field offices how to help borrowers and lenders that experience the holdup with second-time applications. Once the flags are resolved, those applications will be given priority in the approval process, an incoming SBA official said.

The PPP, which reopened to new and returning applicants after being closed since last August, provides forgivable loans to small businesses, self-employed workers and others to help them weather the coronavirus pandemic. The loans are issued through lenders, such as banks and credit unions, and are backed by the SBA.

Covid-19 Relief Proposals

Many borrowers were unaware of the flags and have been surprised to have their second applications held up, according to the SBA official, who is working with career staff at the agency on the issue.

It isn’t clear how many of the 240,000 flagged borrowers are applying for additional aid. The SBA has approved more than 400,000 loans worth roughly $35 billion since the program reopened, according to the agency. Lenders have said that most of the applicants are second-time borrowers.

Some lenders report that as many as 35{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of second-time applications submitted to the SBA for approval had a flag that prevented the loan from being processed, according to Mr. Wilkinson of the National Association of Government Guaranteed Lenders.

The program’s initial run from last April to August was dogged by reports of potential fraud and waste, prompting warnings from the SBA’s inspector general.

When the coronavirus tore through industry, commerce and society in March 2020, the U.S. economy came to a screeching halt. Top executives relive the tough decisions they made as they scrambled to weather the storm. Photo Illustration: Adele Morgan/The Wall Street Journal

When it reopened the program, the SBA said it was taking new steps to verify applicants’ identity and data before approving loans. Unlike the program’s first iteration, the agency isn’t approving loans immediately, but instead conducting those reviews first. That means borrowers broadly are waiting longer for loan approvals.

The SBA’s effort to address the issue with flagged applications is part of an effort to fulfill a campaign promise from President Biden that small-business coronavirus aid would be distributed equitably, according to the incoming SBA official.

The program’s first run initially struggled to reach small businesses with weak ties to financial institutions. Small-business advocates also raised concerns that small firms with little technical savvy and minority-owned businesses had difficulty accessing the program, especially early on.

Write to Amara Omeokwe at [email protected]

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