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Who’s being helped by SBA PPP loans?

In staying abreast of the ongoing industry impact of the Coronavirus Aid, Relief, and Economic Security Act (CARES), Quality Mortgage Services (QMS) questions disparity in issuance of Paycheck Protection Program (PPP) loans by the Small Business Administration (SBA).In haste to meet the COVID-19 challenge, the SBA has generated considerable risk from issuance of PPP loans in excess of two million dollars, which has drawn attention from Treasury Secretary Steven Mnuchin. Additionally, PPP loans have seemingly been issued to small businesses based on the percentage of fees that lending banks will receive, resulting in several class action lawsuits.

The SBA is a standalone government agency established to provide financial assistance, including education and lending, to small businesses within the U.S. The SBA’s Office of Inspector General protects against fraud, waste, mismanagement, or misconduct, and the Office of the National Ombudsman helps protect small businesses from federal agency concerns and regulatory burden. The question becomes, who is providing oversight on the now $660 billion in approved funding for the PPP program.

Alarmed by the excessive issuance of high balance loans to “small businesses”, Secretary Mnuchin announced that recipients of PPP loans over $2 million will face a full audit and targeted auditing of businesses that received smaller loans will also take place. A population of PPP loans have wound up with very unlikely recipients that includes large restaurant chains, such as Shake Shack and Ruth Chris, as well as the Los Angeles Lakers. Mnuchin has put full responsibility on the borrowers that received PPP loans stating that this “was not a program designed for public companies that had liquidity” and concluding that larger firms who received PPP funding have “criminal liability” tied to false “certification” in this area. It is however difficult to understand why lenders and the SBA granted funding when many of the loan recipients clearly fell into this higher category. Moreover, it is the SBA who has said they will conduct audits on each of the $2 million+ balance PPP loans. These audits will take place sometime prior to forgiving the debt. How can we assure compliance if we 1) limit full audits to the $2 million+ balance loans, 2) wait to conduct audits until nearing loan forgiveness, and 3) allow the SBA to conduct the audits without third-party review?

Further concern over PPP recipients has come to light on the heels of class-action lawsuits that accuse some of the industry’s largest banks of submitting higher loan balance PPPs prior to smaller balance applications. Tying back to a financial crisis issue, whereby money is lent based on commission versus need, lender payment for PPP loans is tiered based on loan amount. The SBA reported that 30 percent of early loan applications were for balances in excess of $150,000. Immediately prior to running out of PPP funding, this amount fell to 26 percent. Arguably this could be due to a lack of resources to apply for a PPP in a timely basis, but the reality is clear, those that were intended to receive small business relief under the CARES Act have not been able to fairly access PPP loans.

It is vitally important that the benefits of the CARES Act are not negated by a lack of proper diligence as relief is extended under the various sections of the act.Small businesses have been offered an opportunity to take care of their businesses, and most importantly their personnel, under Section 1102 Paycheck Protection Program and Section 1106 Loan Forgiveness.In an effort to help ensure that this relief becomes an equitable reality, as well as call out those that are trying to exploit the opportunity, QMS has leveraged their longstanding knowledge of quality control and audit to create COVID-19 PPP loan reviews.

Quality Mortgage Services is uniquely positioned to assist oversight agencies in meeting the challenges of compliance under the CARES Act.As an industry staple for the past several decades, QMS grew their business out of experience developed in response to the S&L crisis, and further evolved their expertise and innovation to meet industry needs through the Great Recession.In order to assist during this unprecedented time of crisis, QMS is offering to lead the industry in mitigating risk tied to the issuance of PPP loans and eventual forgiveness. Our extensive and sophisticated file reviews are designed to identify and evaluate lender underwriting criteria against SBA CARES Act criteria, loan officer trends based on prioritization of loans for profit versus need, possible exposure to fraud from fraudulent documentation and misrepresentation, multiple application requests from the same entity/individual, and possible violations of Anti Money Laundering (AML) requirements, as well as implement the use of additional QC best practices for validation and audit.

Government oversight agencies should not wait for a time closer to forgiveness to assess risk associated with PPP loans.The SBA waived underwriting parameters on the first wave of these loans so to assume there’s not significant fraud and misrepresentation would be irresponsible. This is already apparent given the issues raised during the first round of PPP funding under the CARES Act.If your agency is also questioning the validity of PPP applications, please reach out to us today.QMS stands ready to help the industry ensure PPP loan originations are compliant.We are a veteran-owned quality control and audit technology solutions company, as well as a dedicated member of the Mortgage Bankers Association (MBA), committed to both the industry and our valued customer base in meeting the challenges of COVID-19. Visit us at to see how our team can assist in navigating this difficult time for small businesses and employees experiencing loss of wages or employment.

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