PPP loans should not be automatic

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The Paycheck Protection Program was a vital lifeline for businesses during the pandemic, providing nearly $ 520 billion in aid to more than 5 million businesses. The premise of the program is to provide cash injections to recipients to pay for their employees and skilled expenses such as rent, with the promise that in many cases the loans will be waived.

But should such loans be? automatically awarded – companies skip the paperwork required to prove that government funds have been used for their intended purpose? Two bank lobby groups and Treasury Secretary Steve Mnuchin said borrowers with loans below $ 150,000 should not go through an award process. This would mean that, according to the SBA, more than 86% of all PPP loans would be granted automatically.

Aid funds must be taken into account

The US economic fabric is woven from the hardworking efforts of millions of hardworking entrepreneurs, farmers, healthcare providers, service providers, and others. The PPP was specifically designed to prevent this material from disintegrating in the midst of an unprecedented crisis.

If the PPP were to function like the Citizen Economic Impact Payments, the government would have simply written checks to US business owners – just as it did with their eligible citizens stimulus payments. PPP funds are taxpayer dollars specifically designed to keep employment and support the economy during these turbulent times; Therefore, the use of these funds must require some accountability.

Business owners should be expected to take the time to demonstrate how they have used the money to promote accountability and reduce fraud. If a small business owner has used the PPP loan for the intended payroll expense items, the loan should be 100% waived. If not, it is not the taxpayer’s responsibility to recover the cost of misused funds.

Yes, it will be an effort for both business owners and lenders to go through the forgiveness process; but the process of documenting the use of funds will help maximize the effectiveness of this $ 520 billion aid.

Automatically grant loans to single parents and the self-employed

While I don’t believe in auto-forgiveness for all loans under $ 150,000, I advocate that loans to sole proprietorships, 1,099 contractors, and the self-employed should be auto-granted. Documenting how they pay themselves is already a challenge for these very small businesses, they don’t support other employees, and they usually don’t have separate office space with ancillary costs. This is a segment of small business owners who should benefit from a mandate for self-forgiveness.

However, I strongly recommend any company with employees to keep the original policy in the PPP, which provides basic accountability for the use of the credit. When used correctly, forgiveness should be granted. If not, the SBA should ask for the loan to be repaid.

I hope the forgiveness process is as streamlined and simple as possible. While I have empathy with lenders who would prefer to focus their efforts elsewhere right now, I believe this process is necessary to protect against fraud.

The unintended consequence of speed is cheating

In April, when the unemployment rate was increasing day by day, the need was fast Putting capital in the hands of small businesses was paramount. The business owners were desperate and the collective industry tried everything possible to process the loans as efficiently as possible. Unfortunately, one of the unintended consequences of the speed is increased fraud.

“The limited safeguards and the lack of timely and complete guidance and oversight planning have increased the likelihood that borrowers will misuse or improperly obtain loan proceeds,” wrote the Government Accountability Office.

Due to the rapid rollout of the program, there were also questions about who received a share of the funds. To the outrage of many people, some listed companies received aid in the millions. Worse, the program was at risk for scammers.

In an even more egregious case of PPP fraud, a Florida man was arrested after allegedly receiving nearly $ 4 million in federal loans and spending them on lavish purchases, including a Lamborghini Huracan. The man claimed to have operated four companies that employed 70 people and had $ 4 million in monthly expenses. Authorities became aware of it after he requested more than $ 13 million in additional money.

While the above example is an extreme case, introducing basic accountability by documenting the use of PPP funds will help reduce fraud collectively and ensure the proper use of taxpayers’ money.

Will there be another round of PPP?

Unfortunately, the COVID-19 pandemic continues and most small businesses are still feeling the pain. The initial PPP loan certainly helped many survive, but those who have been hit the hardest need another lifeline. Senate Republicans have tabled a plan to raise funds to companies with fewer than 300 employees that have been hard hit by the pandemic. Part of the initiative also stipulates that applications show a revenue loss of at least 50 percent compared to the previous quarter.

Part of this new round of PPP loans will be reserved for companies with 10 or fewer employees, a segment that has historically been penalized when it comes to borrowing from major banks. It is these business owners, along with sole proprietorships, who would likely get up to $ 20,000 in loans.

Throughout the PPP, my company, Lendio, has helped many of the smallest businesses in the country get in touch with one of our 300 PPP lenders. To date, we have enabled 100,000 PPP loan approvals totaling $ 8 billion. It takes more to keep these businesses afloat. Congress should act quickly to pass another relief bill with the proper accountability to keep our country’s small business engine running.

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