GAO-21-577, PAYCHECK PROTECTION PROGRAM: SBA Added Program Safeguards, but Additional Actions Are Needed

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

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

[email protected]

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 len

ders; 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

e 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

e requirement to purchase PPP

loans in advance of loan forgiveness

Page i 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

Page ii 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

Page iii 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

Page iv 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

Page v 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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Page 1 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.

As we reported in June 2020, SBA moved quickly to implement PPP so

that lenders could begin distributing funds as quickly as possible.

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.

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

PPP was authorized under SBA’s 7(a) small business lending program.

GAO, COVID-19: Opportunities to Improve Federal Response and Recovery Efforts,

GAO-20-625 (Washington, D.C.: June 25, 2020).

Congress 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

Page 2 GAO-21-577 Paycheck Protection Program

controls.

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.

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.

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.

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

See 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).

GAO, High Risk Series: Dedicated Leadership Needed to Address Limited Progress in

Most High-Risk Areas, GAO-21-119SP (Washington, D.C.: Mar. 2, 2021).

Small Business Administration, Office of Performance Management and the Chief

Financial Officer, Agency Financial Report Fiscal Year 2020 (Washington, D.C.: Dec. 18,

2020).

Pub. 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.

Page 3 GAO-21-577 Paycheck Protection Program

response rate of 57.3 percent.

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.

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

We 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.

Office of Management and Budget, Policies for Federal Credit Programs and Non-Tax

Receivables, OMB Circular No. A-129 (Washington, D.C.: January 2013).

Page 4 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.

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.

• The Consolidated Appropriations Act, 2021, authorized additional

loans under the program, including second PPP loans (second draw

GAO, Standards for Internal Control in the Federal Government, GAO-14-704G

(Washington, D.C.: Sept. 10, 2014).

The 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

Page 5 GAO-21-577 Paycheck Protection Program

loans) of up to $2 million for PPP borrowers provided they met certain

criteria.

• 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.

Figure 1: Timeline of Key Paycheck Protection Program Events, as of May 31, 2021

PPP 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).

SBA continued to accept new applications from community financial institutions because

funds set aside for them remained. SBA also continued to process pending applications.

Page 6 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.

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.

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.

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 payments

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

The loan guarantee covers a lender’s losses in the event of a borrower default, reducing

the risk of lending to small businesses.

However, 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.

SBA originally required borrowers to spend at least 75 percent of forgivable expenses on

payroll costs, but this requirement was modified by later legislation.

Page 7 GAO-21-577 Paycheck Protection Program

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 date

Source: GAO analysis of Small Business Administration (SBA) information. | GAO-21-577

If 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.

Prior 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.

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.

Existing 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.

Page 8 GAO-21-577 Paycheck Protection Program

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

Page 9 GAO-21-577 Paycheck Protection Program

Figure 2: Timeline for Paycheck Protection Program Round 1

The 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.

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

The 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.

Page 10 GAO-21-577 Paycheck Protection Program

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.

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.

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.

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.

Although lenders were not required to conduct detailed underwriting of

PPP applications, they had to apply relevant Bank Secrecy Act (BSA)

The 95 percent confidence interval for this estimate is (72, 78).

The 95 percent confidence interval for this estimate is (63, 70).

GAO-20-625.

As 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

Page 11 GAO-21-577 Paycheck Protection Program

program requirements.

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.

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.

Twenty-three percent of lenders

did not make any loans to borrowers with whom they had no prior

relationship.

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

The 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.

SBA 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).

The 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).

The 95 percent confidence interval for this estimate is (20, 26).

Page 12 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.

• 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.

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.

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.

Improper 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.

GAO-21-191.

Small 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

Page 13 GAO-21-577 Paycheck Protection Program

• Suspicious activity reports. In January 2021, we reported on

potentially suspicious activity in PPP.

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.

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.

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.

• 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.

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

GAO-21-265.

For 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.

Certain 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.

Banks 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.

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).

Page 14 GAO-21-577 Paycheck Protection Program

not subject to an SBA guarantee, as appropriate.

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.

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.

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.

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.

More 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.

We 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.

As noted earlier, there were about 5.1 million PPP loans made from April 2020 to August

2020 (Round 1).

Using 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

Page 15 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.

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.

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).

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

As previously mentioned, the initial PPP appropriation was exhausted within the first 2

weeks of the program.

We define a high volume lender as a lender that issued more loans than the 75th

percentile of all lenders.

GAO-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

Page 16 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.

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.

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.

According to SBA officials and documentation, SBA

compared loan applications against Treasury’s Do Not Pay service

and public records.

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.

A 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.

SBA issues a loan number when it agrees to guarantee the loan.

The 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).

Treasury’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

Page 17 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.

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.

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

SBA 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).

In 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).

Page 18 GAO-21-577 Paycheck Protection Program

messages.

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.

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.

See 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).

Some 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

Page 19 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.

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.

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.

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

85 Fed. Reg. 20,811 (Apr. 15, 2020); 85 Fed. Reg. 33,004 (June 1, 2020).

85 Fed. Reg. 36,997 (June 19, 2020); 85 Fed. Reg. 38,304 (June 26, 2020).

85 Fed. Reg. 66,214 (Oct. 19, 2020).

Loan Forgiveness Rules

Established a Three-Step

Process

Loan Forgiveness Rules and

Guidance

Page 20 GAO-21-577 Paycheck Protection Program

mortgages incurred prior to February 15, 2020, and utility payments.

February 2021, SBA issued an interim final rule that consolidated loan

forgiveness information from prior rules.

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.

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.

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.

shown in figure 3, PPP loan forgiveness will extend into 2022 or beyond

for Round 1 loans.

The 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.

86 Fed. Reg. 8283 (Feb. 5, 2021).

SBA 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.

For 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.

85 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

Page 21 GAO-21-577 Paycheck Protection Program

Figure 3: Paycheck Protection Program (PPP) Loan Forgiveness Process and Timeline for Round 1 Loans

The timeline for PPP loan forgiveness may take longer if the borrower waits until after the deferment

period to apply for loan forgiveness.

SBA’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).

A 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).

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.

According 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.

Borrowers 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

Page 22 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

Page 23 GAO-21-577 Paycheck Protection Program

amount is determined.

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.

SBA’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).

According 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.

Page 24 GAO-21-577 Paycheck Protection Program

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.

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

According to SBA officials, SBA did not finalize the procedures for reviews of loans of $2

million or more until January 2021.

Page 25 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.

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–

days

Number a

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%)

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.

We found that it

Business 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).

According to SBA officials, SBA began making forgiveness payments in early October

2020 on loans that did not undergo a review.

Page 26 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.

Page 27 GAO-21-577 Paycheck Protection Program

7).

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).

On 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.

Page 28 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

Page 29 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.

Page 30 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.

We estimate that 58 percent of lenders found the information SBA

provided about the loan forgiveness process to be very or moderately

helpful.

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.

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.

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

In 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.

The 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.

The 95 percent confidence interval for this estimate is (65, 72).

The 95 percent confidence interval for this estimate is (55, 62).

Survey Shows Lenders

Cited Challenges with the

Loan Forgiveness Process

Page 31 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.

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.

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.

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.

Business 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).

The 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.

Forty-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).

Page 32 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.

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.

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.

Similarly, we estimate that 56 percent of lenders found that

insufficient documentation from borrowers was very or moderately

challenging during the loan forgiveness process.

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

The 95 percent confidence interval for this estimate is (58, 65).

The 95 percent confidence interval for this estimate is (40, 46).

The 95 percent confidence interval for this estimate is (47, 54).

The 95 percent confidence interval for this estimate is (53, 60).

SBA Has Not Developed a

Guarantee Purchase

Process for PPP Loans

Page 33 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.

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.

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.

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

The 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.

PPP loans may be for 2 or 5 years, depending in part, on when they were made.

Although 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.

Page 34 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.

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.

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

Pub. 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.

The 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

Page 35 GAO-21-577 Paycheck Protection Program

end of week 7 of the loan’s covered period.

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.

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.

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.

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.

Further, SBA officials stated the program is now over 1 year old

The 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.

The 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.

Business 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).

Business Loan Program Temporary Changes; Paycheck Protection Program as

Amended by Economic Aid Act, 86 Fed. Reg. 3692, 3708, n. 101 (Jan. 14, 2021).

The 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.

Page 36 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

Page 37 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

Page 38 GAO-21-577 Paycheck Protection Program

invalid, according to loan review contractor officials.

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.

The 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.

Page 39 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

The 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.

Page 40 GAO-21-577 Paycheck Protection Program

Based 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.

The 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

Page 41 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

Page 42 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.

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.

A 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).

Page 43 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.

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

GAO-14-704G.

Page 44 GAO-21-577 Paycheck Protection Program

that the borrower actually selected that exemption.

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.

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

A 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.

OMB 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

Page 45 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.

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.

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.

Other 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.

As 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.

The 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

Page 46 GAO-21-577 Paycheck Protection Program

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.

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

Circular 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

Page 47 GAO-21-577 Paycheck Protection Program

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.

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

Existing 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

Page 48 GAO-21-577 Paycheck Protection Program

data to SBA leadership.

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.

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.

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

Circular 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.

SBA 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.

SBA’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).

Page 49 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.

Page 50 GAO-21-577 Paycheck Protection Program

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

Page 51 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

Page 52 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 [email protected]. 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

Page 53 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

Page 54 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

Page 55 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

Page 56 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

Page 57 GAO-21-577 Paycheck Protection Program

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

Page 58 GAO-21-577 Paycheck Protection Program

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.

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)

The 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

Page 59 GAO-21-577 Paycheck Protection Program

credit unions, (6) nonbank lending institutions, and (7) minority-owned

depository institutions and community development financial institutions.

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.

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

We 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.

We 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.

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.

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

Pub. 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).

For 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.

We also analyzed loan-level data on loan forgiveness from SBA’s

Paycheck Protection Platform as of May 17, 2021.

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.

We determined

Office 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).

The 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.

GAO, 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.

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.

Where 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.

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

We 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

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

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

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

Page 71 GAO-21-577 Paycheck Protection Program

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

Page 72 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

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

Page 73 GAO-21-577 Paycheck Protection Program

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 GAO-21-577 Paycheck Protection Program

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 period

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

Page 75 GAO-21-577 Paycheck Protection Program

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

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.

Interest rate. The CARES Act set the interest rate for PPP loans at no

more than 4 percent.

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.

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.

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.”

Pub. L. No. 116-136, § 1102(a), 134 Stat. 281, 291 (2020) (codified at 15 U.S.C. §

636(a)(36)(L)).

85 Fed. Reg. 20,811, 20,813, 20,816 (Apr. 15, 2020).

At the time of SBA’s analysis, the maturity for PPP loans was 2 years.

Appendix III: Key Paycheck Protection

Program Implementation Decisions

Page 76 GAO-21-577 Paycheck Protection Program

Maturity. The CARES Act set the maximum maturity for PPP loans at no

more than 10 years.

In its first interim final rule, SBA set the maturity at 2

years.

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.

In mid-June 2020, SBA posted an interim final

rule amending the first PPP interim final rule to incorporate those

changes.

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.

Loan usage. Under the CARES Act, PPP loans may be used for both

payroll costs and certain other purposes.

In its first interim final rule, SBA

Pub. L. No. 116-136, § 1102(a), 134 Stat. 281, 291 (2020) (codified as amended at 15

U.S.C. § 636(a)(36)(K)).

85 Fed. Reg. 20,811, 20,813 (Apr. 15, 2020).

Pub. L. No. 116-142, § 2, 134 Stat. 641 (2020) (codified as amended at 15 U.S.C. §

636(a)(36)(K)).

85 Fed. Reg. 36,308, 36,310 (June 16, 2020).

Small Business Administration, Paycheck Protection Program Loans, Frequently Asked

Questions, question 49 (2020), https://www.sba.gov/document/support-faq-ppp-

borrowers-lenders.

Pub. L. No. 116-136, § 1102(a), 134 Stat. 281, 290 (2020) (codified as amended at 15

U.S.C. § 636(a)(36)(F)).

Appendix III: Key Paycheck Protection

Program Implementation Decisions

Page 77 GAO-21-577 Paycheck Protection Program

required that no more than 25 percent of the PPP loan forgiveness

amount be attributable to nonpayroll costs.

The Paycheck Protection

Program Flexibility Act modified this limit to 40 percent, and SBA

subsequently amended its rule to reflect this change.

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).

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.

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.

In June 2020, Congress amended the PPP deferment period

in the Paycheck Protection Program Flexibility Act.

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

85 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).

Pub. 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).

Pub. 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).

Pub. L. No. 116-136, § 1102(a), 134 Stat. 281, 292 (2020) (codified as amended at 15

U.S.C. § 636(a)(36)(M)).

85 Fed. Reg. 20,811, 20,813 (Apr. 15, 2020).

Pub. L. No. 116-142, § 3(c), 134 Stat. 641, 642-43 (2020).

Appendix III: Key Paycheck Protection

Program Implementation Decisions

Page 78 GAO-21-577 Paycheck Protection Program

period applicable to both new and existing PPP loans.

SBA updated its

interim final rules in June 2020 implementing these revisions.

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.

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.

In the first interim final rule, SBA and

Treasury announced that approving additional lenders was necessary to

achieve program goals.

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.

In addition, the CARES Act waived the application of certain SBA

affiliation rules for accommodation and food services sector borrowers

Id. at § 3(d).

85 Fed. Reg. 36,308, 36,310 (June 16, 2020); 85 Fed. Reg. 38,304, 38,306 (June 26,

2020).

Pub. L. No. 116-136, § 1102(a), 134 Stat. 281, 290 (2020) (codified at 15 U.S.C. §

636(a)(36)(F)(ii)-(iii)).

Id.

85 Fed. Reg. 20,811, 20,815 (Apr. 15, 2020).

Pub. 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

Page 79 GAO-21-577 Paycheck Protection Program

with no more than 500 employees per physical location.

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.

Subsequent legislation has further expanded the list of PPP-

eligible borrowers and SBA has updated its interim final rules to

acknowledge these changes.

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.

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.

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

Id. 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.

See 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).

Pub. 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).

Pub. L. No. 116-136, § 1102(a), 134 Stat. 281, 293 (2020) (codified at 15 U.S.C. §

636(a)(36)(P)(iv)).

85 Fed. Reg. 20,811, 20,813 (Apr. 15, 2020).

Appendix III: Key Paycheck Protection

Program Implementation Decisions

Page 80 GAO-21-577 Paycheck Protection Program

General recommendation that it do so.

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.

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.

In June 2020, SBA released a letter asking lenders to “redouble” their

efforts to assist eligible borrowers in underserved and disadvantaged

communities.

Additionally, in January 2021, SBA released specific

guidance on accessing capital for minority, underserved, veteran, and

women-owned businesses.

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.

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.

GAO, 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).

Pub. L. No. 116-139, § 101(d), 134 Stat. 620, 621-22 (2020).

Small 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.

Small Business Administration, SBA Administrator Message to Lenders re: Underserved

Communities (June 15, 2020).

Small Business Administration, Guidance on Accessing Capital for Minority,

Underserved, Veteran and Women-Owned Business Concerns (Jan. 6, 2021).

Pub. 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.

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.

Office 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

Page 82 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 [email protected]

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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