SBA Releases PPP Borrower Data
Following U.S. Federal Judge James Boasberg’s order to the Small Business Administration for the release of names and precise loan amounts of all Paycheck Protection Program and Economic Injury Disaster Loan borrower recipients, the Administration complied.
The detailed loan information was released on Dec. 1, following a temporary stay Boasberg granted to the SBA regarding its original Nov. 19 deadline.
In wake of the COVID-19 pandemic, in April, the Small Business Administration released an interim final rule for the PPP, stating that to qualify, businesses must have 500 or fewer employees and fall below the agency’s small business size standards.
The standard in question revolves around small size standards (as defined in section 3 of the Small Business Act, 15 U.S.C. 632). For construction businesses, this is generally determined by an average annual income threshold, not a number of employees threshold.
The PPP officially opened on April 3.
By the end of the month, the SBA found that the first round of PPP reportedly saw the most money divvied out to the construction industry. The program allowed for a cap of $349 billion in loans to be given to small firms that qualified during the COVID-19 pandemic. The money ran out April 16.
The numbers indicate that the construction industry received 177,905 loan approvals, totaling about $45 billion and amounting to 13.12% of all loans—the majority when divided up into subsectors.
By the middle of May, the SBA released an 11-page application for lenders and small businesses to apply for PPP loan forgiveness. However, in June, the U.S. Senate unanimously approved a bill updating the PPP terms. H.R. 7010, or the “Paycheck Protection Program Flexibility Act of 2020,” included changes such as:
In addition to the changes in the amendment, the government issued an updated FAQ at the end of May dealing with the differences of loans above and below $2 million. In previous guidance, the Treasury Department had said that all PPP loans of $2 million or more (upon an application of forgiveness) would be audited with the possible implication of investigation and penalty enforcement.
However, the recent clarification states not only that loans less than $2 million would be “automatically deemed” to have acted in good faith, but that while loans at and above $2 million would still be reviewed, the party would be required to pay back the loan without penalty of enforcement action.
Also in May, The Washington Post, The New York Times, Bloomberg LP, Dow Jones and ProPublica issued a lawsuit under the Freedom of Information Act against the SBA for the access of government records detailing which companies have received loans under the PPP and the Economic Injury Disaster Loan program. The suit seeks not only the names of the companies, but the loan amounts and processing banks, to no avail.
The lawsuit arrived after the SBA temporarily boosted its Express lending limit from $350,000 to $1 million as part of the pandemic relief effort. According to reports, unlike the PPP program, SBA Express doesn’t offer loan forgiveness, nor does it require borrowers to spend 75% of the loan amount on payroll. SBA Express also allows lenders to use their own forms and procedures, apply in-house collateral standards and make the final credit decision. The guarantee amount, however, is 50% rather than the 75% that’s typical for SBA 7(a) loans.
At the time, SBA argued that releasing such information could violate their privacy, as PPP loans are tailored to the size of a business’s payroll.
In July, the SBA disclosed the names, addresses, ZIP codes, demographic data and industry codes of borrowers receiving PPP loans amounting to $150,000 or more. However, according to The Wall Street Journal roughly 4.5 million of the 5.2 million PPP loans issued (or less than 15%) were for $150,000 or less.
At the end of month, the SBA inspector general called for a closer oversight of the EIDL program after receiving over 5,000 complaints of suspected fraud from lenders.
In September, PaintSquare Daily News reported that businesses that received PPP loans during the pandemic could experience higher tax revenues. The concern arrived after the Internal Revenue Service ruled that businesses couldn’t write off tax reductions for wages and rent paid using the forgivable PPP loans as to prevent a “double tax benefit.”
According to the U.S. Chamber of Commerce, PPP loans can be forgiven as long as at least 60% of the funding was spent on employee payroll cost, while the other 40% should have been used for mortgage interest, rent and utility payments. Additionally, forgiveness is also based on an employers’ continuance to pay employees at normal levels over 24 weeks following the origination of the loan.
To apply for forgiveness, businesses who received a loan will have to file a PPP Loan Forgiveness Application with the Treasury Department through the private lender they obtained the loan from.
If the PPP is deemed forgiven, then the loan is tax-exempt. However, as aforementioned, the exemptions can in turn reduce the amount a business writes off on its taxes, meaning the company could owe more taxes than compared to previous years.
However, through the PPP Flexibility Act, employers can defer these taxes even after the PPP loan has been forgiven. If deferred, employers are required to pay 50% of the deferred taxes that accumulated in 2020 by Dec. 31, 2021, and the other 50% of the deferred amount would have to be paid by Dec. 31, 2022.
In October, the SBA—in consultation with the U.S. Treasury Department—released a simpler loan forgiveness application for PPP loans amounting to $50,000 or less. The new form arrived as an effort to ease the burden for lenders and small businesses. Approximately $62 billion of the $525 billion in PPP loans that have been issued total $50,000 or less.
Not only will the simplified PPP forgiveness process ease the burden on small businesses, but the SBA and Treasury report that the burden is also reduced for PPP lenders, allowing them to process forgiveness applications more swiftly.
However, while the streamlined forgiveness will affect 3.57 million of the 5.2 million loans originated under the program, some trade groups are calling for further action from Congress.
SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders for PPP borrowers on Oct. 2. SBA reports that it will continue to process all PPP forgiveness applications in an expeditious manner.
Last month, Judge Boasberg of the U.S. District Court for the District of Columbia issued an order to the SBA to release the names and precise loan amounts of all Paycheck Protection Program and Economic Injury Disaster Loan borrower recipients.
Since the launch of PPP and EIDL programs in response to the COVID-19 pandemic, the SBA has processed an unprecedented $717 billion in loans. However, the SBA has reportedly lacked in providing transparency, withholding the precise amounts of all loans of $150,000 or more, as well as recipients’ identities for loans under that figure following a suit filed in July.
Thus far, investigations regarding the PPP and EIDL loans have revealed that the SBA referred more than 80,000 loans to law enforcement; more than 100 Wells Fargo employees were fired for making false representations on EIDL applications; the Financial Crimes Enforcement Network received 2,495 suspicious-activity reports involving September-filed business loans; and 73 defendants have already been charged by the Justice Department regarding PPP-related fraud cases, among other reports.
As a response to the growing fraudulent borrowing cases, the SBA is expected to release all PPP and EIDL borrower information by Nov. 19, however, that requirement was pushed to Dec. 1, following Boasberg’s rejection for SBA’s request to stay.
The public “maintains an urgent and immediate interest in assessing the results of SBA’s initial effort at administering a massive, small-business relief package and extracting lessons where possible—both to inform a critical, ongoing federal debate and to remedy failures in the loan-disbursement process moving forward,” Boasberg wrote in the order.
Most recently regarding the PPP loans, last week, the Associated General Contractors of American announced that it has filed a lawsuit against the SBA and the Office of Management and Budget in order to block a questionnaire that’s now being used to reassess whether companies were eligible for Paycheck Protection Program loans.
In addition to suggesting that the questionnaire is unlawful to begin with, the AGC is also asking for the courts to restrict the use of the information that the questionnaire generates until the SBA makes it available to the public and publishes revisions.
The suit was filed Dec. 8 in the United States District Court for the District of Columbia.
In the complaint, the AGC charges that the way the form was created violates the Paperwork Reduction Act and the Administrative Procedures Act. The AGC is “requesting the court to declare that the questionnaire is arbitrary and capricious, and to declare that the SBA cannot lawfully use the information that the form generates to find a company ineligible for a PPP loan or deny a company’s application for forgiveness of its loan.”
AGC says that the two agencies disregarded the legally mandated process for developing such a questionnaire, mainly that it wasn’t released for a 60-day public comment period and that the two arbitrarily put an emergency label on the survey to bypass the collection process.
The association also noted that the CARES Act (which established the PPP program) only required loan applicants to make a “good faith certification that the uncertainty of current economic conditions makes necessary the loan request….”
The new form attempts to set a means test, a revenue reduction test and a liquidity test that Congress never contemplated, and it focuses on later events that few companies could have predicted when applying, according to AGC.
PPP Data Exposed
According to The Washington Post, of the more than 5 million loans released in response to a Freedom of Information Act request and lawsuit, more than half the money provided through the PPP program for small businesses went to just 5% of the recipients.
Previously, the SBA and Treasury Department officials argued that the program benefited small businesses, given that more than 87% of loans distributed were for less than $150,000. However, the newly released data reveals that more than half of the $522 billion of allotted funding went to bigger businesses, and only 28% of that amounted to less than $150,000.
The other 72% was distributed to about 600 mostly larger companies, including dozens of national chains, received the maximum amount allowed under the program of $10 million. In a diagram, the Post shows that the top 1% of borrowers received more than a quarter of the total loan value, while the top 5% of loans amount to more than half of the total loan value.
“The data shows that this program primarily benefited the well-banked and well-lawyered at the expense of the small businesses it was supposed to benefit,” Liz Hempowicz, Director of Public Policy for the nonprofit Project on Government Oversight said.
Countering her statement, Ashley Harrington, federal advocacy director and senior counsel for the Center for Responsible Lending suggested that the disparity could be blamed on the PPP program’s fee structure in the early phases of the program, as the majority of loan distribution was carried out by private banks.
“The fee structure initially incentivized loans to larger businesses because banks could bring in larger fees from those firms,” Harrington said. “Funneling the loans through existing SBA-approved lenders, banks and credit unions disadvantaged businesses of color, which have historically lacked access to credit.”
PPP loan data through Aug. 8 can be downloaded, here.