PPP Reports Released, New Court Ruling on Borrower Eligibility

Mary Scott Balys

Recently two reports on the Paycheck Protection Program (PPP) were released. In addition, a U.S. District Court in Michigan ruled that the SBA cannot limit which small businesses are eligible for the PPP:

Reports Released

The Small Business Administration (SBA) Inspector General (IG) released a report in response to a request from Senators Schumer (D-NY), Cardin (D-MD), and Brown (D-OH), asking the IG to investigate whether banks prioritized the applications of wealthier customers and to evaluate the SBA’s implementation of the PPP. The report concluded that SBA did not follow Congressional intent to target the program to underserved and rural markets.

The CARES Act directed the SBA Administrator to issue guidance for lenders to prioritize underserved and rural small businesses, particularly those owned and controlled by veterans, socially and economically disadvantaged individuals, and women; however, this guidance was not produced by SBA. The SBA also failed to include optional demographic reporting on its PPP loan application. The IG found that the SBA did not fully align with the CARES Act in a few other areas, including guidance on loan deferments, loan proceeds eligible for forgiveness, and registration of loans.

In addition, the SBA has released a series of reports on the second round of funding that Congress provided for the PPP. In the report summarizing loan approvals from April 27–May 16, 2020, 305 CDFIs processed 88,027 loans for more than $2.7 billion. The report contains additional breakdowns of loans made by SBA micro-lenders, non-bank CDFIs and other categories. As many of these categories overlap, OFN has joined Democratic Leader Schumer (D-NY) in urging the SBA to be more granular in the data they release to the public, including information on CDFI participation in the first round of funding.

Borrower Eligibility

OFN has also continued to work on helping more CDFIs gain access to the PPP as eligible borrowers. Although the CARES Act specifically allowed 501(c)3 nonprofits to borrow under the PPP, a pre-existing SBA rule is causing confusion around whether nonprofits whose primary business is lending are eligible. On May 9, OFN once again requested clarification from the SBA in a letter to Administrator Carranza.

Meanwhile, a variety of businesses that were excluded from the PPP have brought lawsuits against the SBA. One of these cases involved owners of several dozen strip clubs across the country. On May 12, U.S. District Judge Matthew Leitman issued a preliminary nationwide injunction in that case barring the SBA from enforcing rules to exclude the plaintiffs and from excluding other businesses such as banks, political lobbying firms, and restricted private clubs. It is not clear yet how SBA and Treasury will react to this ruling and whether they will appeal it.

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