Consider This from NPR - How PPP Loan Forgiveness Became a Messy Process with Limited Scrutiny

Episode Date: October 17, 2022

The Paycheck Protection Program (PPP) was designed to soften the financial impact of the pandemic for small businesses. It issued about $800 billion in potentially forgivable government loans to keep workers employed during COVID shutdowns. Now, the overwhelming majority of those loans have been forgiven with very little scrutiny. That means many loans have been forgiven to businesses that flourished during the pandemic or to fraudsters who took advantage of the lax system.Meanwhile, the majority of the loans that remain unforgiven belong to the smallest businesses, companies the program was most meant to help.Sacha Pfeiffer and Austin Fast of NPR's Investigations team looked into how the program failed to be as stringent as the government promised.In participating regions, you'll also hear a local news segment to help you make sense of what's going on in your community.Email us at [e-mail] more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Support for NPR comes from NPR member stations and Eric and Wendy Schmidt through the Schmidt Family Foundation, working toward a healthy, resilient, secure world for all. On the web at theschmidt.org. Ted's restaurant in Birmingham, Alabama has been serving cafeteria-style Southern cooking for almost 50 years, but when the pandemic hit, it could only sell takeout orders. Our business went from like 200 plus people a day to 30. Actually, the worst of it, probably 10. Beba Talupas is the owner of Ted's. She received a $45,000 loan through the Paycheck Protection Program. Overall, the PPP issued about $800 billion in potentially forgivable government loans to small businesses to keep their workers employed during COVID shutdowns. 91% of all the loans have been forgiven so far, but Talupas is in the small minority of borrowers who have yet to have their loans forgiven.

And so Talupas was infuriated when a longtime customer told her his own PPP experience. He had the nerve to tell me that he got money and he didn't need it. Got money, didn't need it. He's got some kind of electrical business. She said the man told her he didn't touch the money until he was sure it would be forgiven. Then, once it was forgiven, he spent it. Yeah, and that was forgiven, he spent it. She's disgusted that while the pandemic was a death sentence for some businesses,

others thrived during COVID and still got PPP money they didn't have to pay back. It's wrong. It is so wrong. NPR has found the smallest businesses, those with just one employee, have the most unforgiven loans, 14%. That number is just 3% for businesses with at least 10 employees. Those one-person businesses include barbers, janitors, Uber drivers, hairdressers, the type of workers who would most need support. Like Candy Crawford in Cape Cod. She owns a small landscaping company called Handy Candy. She applied for a PPP loan through PayPal and received about $1,000. Not much, but it tided her over until she was allowed to start working outdoors again. I mean, it's always wonderful to get $1,000 in the mail,

so it was just like a little extra cash, which was great. But a few months later, she received an email that her loan had been transferred from WebBank to CustomersBank and would now be serviced by Windsor Advantage. She hadn't heard of any of those names before and wondered if it was some kind of scam. It wasn't. She was bounced from company to company to company for months

as she tried to get her loan forgiven. I would say we probably have at least 60 emails going back and forth, at least. This is crazy. Pass the buck. Who is going to answer my question for me? It's a similar aggravation facing other small businesses who applied for a loan through a

financial tech company rather than a traditional bank. Other tiny businesses told NPR they've been let down by bad advice from accountants, botched applications, and missed emails. Consider this. While some small businesses continue the fight to get their loans forgiven, most loans can be forgiven with a simple one-page form. That includes loans that went to businesses that flourished during the pandemic and outright fraudsters. A lot of American small businesses got screwed during this, a lot, and a lot of people took advantage of it. Officials promised a robust review process before forgiving PPP loans, but have only taken a close look at 2%. After the break, we'll take a deeper look into the process and how it failed to be as stringent as promised.

From NPR, I'm Juana Summers. It's Monday, October 17th. This message comes from WISE, the app for doing things in other currencies. October 17th. Support for NPR and the following message come from Carnegie Corporation of New York, working to reduce political polarization through philanthropic support for education, democracy, and peace. More information at carnegie.org. It's Consider This from NPR. Programs like the Paycheck Protection Program were designed to soften the financial impact of the pandemic for small businesses. But they've also added to the U.S. national debt, which exceeded $31 trillion this month. That could harm our ability to respond to other unexpected events like wars, natural disasters, or who knows, the next pandemic. And as we mentioned, a lot of that money went to

businesses who didn't need the money or people who took advantage of the lax system. Sasha Pfeiffer and Austin Fast of the NPR investigations team have been reporting on the PPP loan forgiveness process and how it became so messy. Here's what they found. Right or wrong, loan forgiveness has become the standard. PPP loans always had potential to be forgiven. But the government rushed out the program with so few details that many companies were unsure how easy forgiveness would be. The answer? Very easy.

NPR has found more than 90% of all PPP loans have been forgiven. And that's expected to grow to nearly 100% as more forgiveness requests are submitted. Meanwhile, the Small Business Administration is closely scrutinizing just a tiny portion for fraud and forgiveness eligibility. The SBA says it uses computer models to review all loans, but it's done a hands-on review of only about 200,000, roughly 2%. And of those close reviews, only about 20,000 were denied forgiveness, a minuscule two-tenths of a percent of all loans issued. The PPP program seems to have resulted in billions of dollars of fraudulent loans

that have ultimately turned into grants. Sam Kruger is a University of Texas finance professor. He found of more than 11 million loans issued, over a million show signs of possible fraud, like multiple businesses listed at the same home address. So what does that mean in terms of potentially fraudulent loans? It's like $64 billion. The SBA disputes those findings,

but the agency's own inspector general has warned nearly $5 billion in PPP loans are likely fraudulent. And it's not just fraudulent loans that eventually became grants. Businesses that flourished during the pandemic also got their loans forgiven. Contractors, manufacturers, teleworking firms. For them, it was free government money that became profit on top of profit. That exasperates Roy Thurston. He owns the Blue Heron Art Gallery in Wellfleet, Massachusetts, on Cape Cod. Thurston received about $14,000 in PPP loans. It's all been forgiven. What bothers me is the people that took money that should have known better than to take money.

He says he wishes people had been more worthy. Tom Brady buys a million-dollar yacht and he gets a million dollars in PPP. Oh yeah, he really needed that money. Tom Brady actually bought a six-million-dollar yacht, and his sports nutrition company TB12 got a PPP loan for $960,000. That whole amount was forgiven. Even extremely well-paid NFL quarterbacks benefited from the Paycheck Protection Program. So why wasn't PPP loan forgiveness more stringent?

We put that question to the Trump and Biden administrations. Their responses involved lots of finger-pointing, blame-shifting, and buck-passing, making accountability elusive. You'll hear that later, but first, understand that PPP loans were a breeze to get. To qualify, companies simply had to self-certify they needed the money.

Here's MIT economist David Otter. To call it an honor system would imply that people acted with honor, and there's no evidence I've seen that that occurred. The lure of so much government money drew many dishonest and undeserving borrowers. They could have been weeded out during the forgiveness stage. Then, they'd have to pay the money back. But Congress weakened the forgiveness rules over time. Remember, originally PPP was meant mostly for payroll. By the end, it could be spent on much more than that. And originally, companies were supposed to keep all their employees.

By the end, there were ways around that. As a result, David Otter said, when it comes to loan forgiveness... There are very few things you could do to actually disqualify yourself other than out-and-out fraud. In his view, the Paycheck Protection Program made almost any use of the money legal, and the SBA has limited ability to police the program. Congress made forgiveness increasingly effortless because that's what businesses lobbied for. Here's an exchange between Louisiana Senator John Kennedy and former Treasury Secretary Steven Mnuchin at a June 2020 hearing. And the small businesswomen and small businessmen think that the federal government is going to

double-cross on the forgiveness of these loans. I think the majority of this money is going to be forgiven in the next few months, and that's our intent. You know, I'd like to make this as easy as possible. But the following month, at a July 2020 House oversight hearing, Mnuchin conceded the government had been blindsided by unscrupulous borrowers. And he assured Congress loan forgiveness would be much stricter than loan approval. We're going to have a very robust process to review loans before loans are forgiven. And in the forgiveness process, people will be required to provide much more data.

But forgiveness has been anything but robust. It's so lenient that businesses that got $150,000 or less only have to sign a one-page form promising they use the money correctly. No proof needed. That applies to more than 90% of all loans. So when MIT's David Otter hears companies praise the program, he's skeptical. Of course, he's like, how could they not love it? I mean, what could be better? $800 billion. Here it is. Don't pay it back. Bert Tallerman has a more benevolent view. Certainly, PPP had many flaws. At the same time, those were crazy times. He's president of Cape Cod Five Cents Savings Bank.

And he says, yeah, some businesses got money they ultimately didn't need. But he also says, don't forget the great economic panic of March 2020. I would still say that in terms of an awful lot of small businesses, PPP saved the day. Still, the SBA's inspector general has said the Paycheck Protection Program enabled, quote, an unprecedented level of fraud activity. He also notes the SBA is retroactively checking loans for fraud and eligibility after they've been forgiven. In other words, forgive first and ask questions later. That's created what the inspector general calls a pay and chase situation.

Now, let's hear what the Small Business Administration itself has to say about all this. Patrick Kelly is a senior official at the agency, a Biden appointee, and he says it frustrates him when the SBA is criticized for its handling of the program. I understand I sound defensive and grumpy and so forth. Kelly says, look, the SBA got its PPP marching orders from Congress. And even when the program's problems became obvious, Congress kept voting to issue more loans and make them easier to quickly forgive. He also said Congress never asked the SBA to have tough conversations with businesses that did just fine during the pandemic.

You know, it turns out that you probably didn't need that loan. Can you please give the money back? But when I pressed Kelly on whether he thought the program should have been stricter, he acknowledged some fraud would have been preventable if better safeguards had been in place at the beginning. And he said this. I think these are excellent questions for Secretary Mnuchin from the Trump administration. So I reached out to Mnuchin.

He launched the program. I heard back from Michael Falkender, an assistant treasury secretary under Mnuchin, who now works as a University of Maryland finance professor. Falkender unapologetically said speed was the priority. What would bread lines during a pandemic have looked like? Do we want to know? I didn't. And so we were going

to get that program up and running. He said from the get-go, the government expected almost all the loans to be forgiven. And he said he's proud PPP rescued many people from unemployment. As a former senior treasury official, that's how I look at it. My personal opinion as an academic economist who evaluates the program, that's a totally different interview. And can you share what your opinion as an academic is? It does appear over time that Congress' intention changed. Falkender said Congress gradually changed the program in a way that strayed from its original goal. He said it was designed to save jobs but switched to making small business grants.

And he described that switch as, quote, questionable. So speaking in my personal capacity, I can see why people would be concerned about having more of what I think was an exceptionally successful program into doing something different. Back at Ted's restaurant, Beba Talupas burns at the thought of how much PPP money was squandered. A lot of American small businesses got screwed during this. A lot. And a lot of people took advantage of it. And she wonders whether government relief programs will be more rigorous in the future. If anything happens again, did we learn any lessons? Did we learn any lessons?

That won't be fully known until if or when a new large-scale financial crisis comes. For now, the $800 billion paycheck protection program remains a debt that will be paid by future generations. Sasha Pfeiffer and Austin Fast from NPR's investigations team. NPR's Sierra Lyons also contributed to this story. From NPR, I'm Wanda Summers. It's Consider This.