“Did you hear that the government is giving out free loans that don’t need to be repaid? Sign me up – twice.”
The Small Business Association’s (SBA) Paycheck Protection Program (PPP), which allows small businesses to borrow up to $10 million for payroll and related costs over the next few months, is critical for them to survive the COVID-19 downturn. Prior experience has shown that the larger the government program, the larger the fraud potential, and PPP will be no different. Lenders should be aware of the risks and act accordingly.
Lender risks are partially mitigated by the fact that the CARES Act (Section 1106h) specifically holds lenders harmless if they rely on borrower attestation for loan forgiveness, and is reiterated even more explicitly in the SBA Interim Final Rule (page 24) which states that, “The lender does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs.”
Our view, and the view of many of our bank clients, is that substantial fraud and reputational risk remains for lenders participating in the PPP program.
Lenders should consider the following risks as a starting point:
- Has this borrower already received a PPP loan? From your bank? From another bank?
- Have you collected, reviewed and stored the borrower documentation?
- Have your internal risk-based approach Know Your Customer (KYC)/ Anti-Money Laundering (AML) rules been followed?
- Have there been any consideration given to Regulation B (Equal Credit Opportunity Act) in terms of who is approved and denied?
- Have exceptions to your standard bank policy been documented for future examinations?
CrossCountry has developed a full Risk and Control Framework for the PPP program to assist lenders in ensuring that a controlled process has been implemented, including initial origination and loan forgiveness. Please contact us for more information.
Our latest guidebook provides leaders with a roadmap to enhance resiliency plans, simplify operations, address new financial requirements, and more. To download, please click the link below.