Should Small Business Lenders Weigh Risk of Applicants Getting Prosecuted for PPP Fraud?

| By:

online fraudAs law enforcement officers and prosecutors gradually move on from fake businesses that got PPP in favor of real ones that lied to get more PPP funds than they should have, non-PPP loan underwriters may be forced to grapple with a new question: Is the merchant at risk of PPP fraud prosecution?

Alarm bells have already been sounded by Experian for a different reason, one that warned commercial fintech lenders that the mere receipt of PPP funds should not be considered enough to confer legitimacy on a loan applicant.

But what if everything checks out and the business is legitimate? PPP could come back to adversely affect the performance of the loan if the applicant is later prosecuted or forced to give back all or a portion of the PPP funds. A recent roundup by the Department of Justice, for example, resulted in 22 individuals being charged for PPP related fraud. More than a dozen actual businesses were ensnared by it, with the litany of charges including things “false statements to a federally insured financial institution.”

If a business misappropriated the funds, lied to get more than they should have, lied about when the business was founded, or engaged in some other kind of misleading impropriety, that business could be a ticking time bomb for lenders.

Proactive underwriters or fintech technology could assess whether or not the PPP funds obtained by an applicant were financially realistic and that the business start date aligned with PPP requirements. A business doing $20,000 a month in sales that obtained $200,000 in PPP funds, for example, may look sustainably healthy but raise a red flag that it may not have been legitimately obtained. Underwriters should be crunching the numbers and thinking about whether or not this applicant is likely to face consequences and what that might mean for the loan if it’s approved.

This editorial is the opinion of the author.

Last modified: July 23, 2021
Sean Murray

Category: Business Lending, PPP

Home Business Lending, PPP › Should Small Business Lenders Weigh Risk of Applicants Getting Prosecuted for PPP Fraud?