How can 3,500 SBA employees possibly handle 20+ million small business loans? The SBA just wasn't setup for this administrating disaster relief loans of millions.
“Everybody’s acceptance of some or a lot of fraud is going to have to be high, because it’s going to happen,” said Earl Devaney, who served as the top watchdog of the Recovery Accountability and Transparency Board, which tracked the stimulus spending following the Great Recession in the late 2000s. Read article.This mentality that fraud will be accepted is just wrong. Though the legislation mandates multiple oversight bodies, if even a small percentage of the funds are misused, it could mean fraud on the scale of potentially millions, if not billions, before there are any efforts to recoup losses, according to experts.
They see the $834 billion in funding earmarked for small businesses in the form of forgivable loans as particularly susceptible to abuse. Millions of small business owners began applying to banks for the loans on Friday, though many applicants and lenders experienced problems with the program's rollout.
Other veteran investigators are concerned that the review process, which leaves it up to banks to vet potential borrowers and applicants to attest to their eligibility, doesn’t give authorities enough time to effectively weed out potential fraud.
The $2.2 trillion, 880-page CARES ACT approved by Congress last week included oversight provisions, modeled after some of the safeguards implemented to track the financial system bailout and stimulus money after the Great Recession.
Lawmakers and coronavirus stimulus watchdogs won’t just have this historic $2.2 trillion coronavirus package to police. Conversations have already started on Capitol Hill around a fourth phase of relief funding, including more money for small businesses.
The SBA's directives could create a more equitable distribution of lending power across the industry and get more loans in the hands of businesses, though it's likely that applicants will still struggle to secure them.
The changes mean that the biggest banks may not be able to dominate lending through the PPP, creating an opening for smaller banks. During the first round of PPP fund distribution, more than 25% of the total funding went to fewer than 2% of firms that got relief, in part because banks prioritized existing customers and larger loan applications to yield higher fees — both of which triggered lawsuits — even though the program was supposed to operate on a first-come, first-served basis.
The SBA's new directives mean that some big banks are likely nearing their lending capacity, which could lead some applicants to turn to smaller banks instead, relieving some pressure on application pipelines. And pacing applications could prevent big banks from flooding the SBA with applications, making it less likely that any one lender will receive a disproportionate amount of the available funds. Smaller banks can therefore take advantage of this opportunity to establish relationships with small businesses that were shut out of PPP loans elsewhere. Read More
