SBA’s Oversight of Non-Bank Lenders and Third-Party Service Providers Associated with PPP Loans

Over 5,300 lenders, including bank and non-bank lenders, participated in the Paycheck Protection Program (PPP), an $813.7 billion program that provided forgivable loans to eligible borrowers. The primary distinction between the two is that non-bank lenders are not federally regulated. Both were allowed to partner with third-party service providers to assist in the PPP loan process. We assessed the U.S. Small Business Administration’s (SBA) oversight of non-bank lenders, including financial technology (fintech), and third-party service providers in the PPP.

Opportunities exist for SBA to enhance its oversight of non-bank lenders, including fintechs, and service providers to promote program integrity and reduce financial loss. SBA had processes in place to approve non-bank lenders to become PPP lenders; however, it performed limited oversight of these lenders and was unaware of the extent of service providers’ participation in the PPP.

Executive and legislative actions led SBA to reduce or eliminate barriers for PPP borrowers, resulting in a significant increase in loans being made by non-bank lenders, including fintechs. Additionally, hold harmless provisions protected lenders from consequences if the lender complied with applicable legal requirements. Reduced controls and limited oversight increased the risk of fraud.

We found non-bank PPP lenders made $14.2 billion in suspected fraudulent loans at a rate more than five times higher than loans made by traditional bank lenders. Over $6.1 billion of the $14.2 billion in suspected fraudulent non-bank PPP loans, or nearly 43 percent, were made by lenders categorized as fintechs and other State Regulated Finance Companies.

Additionally, loans involving service providers had a suspected fraud rate more than three times higher than loans made without a service provider. Given SBA’s expanding loan portfolio and increasing reliance on non-bank lenders, including fintechs, in other loan programs and increasing lender reliance on fintech service providers, effective oversight is vital to ensuring program integrity and mitigating fraud risk and financial loss.

We made six recommendations for SBA to strengthen oversight of non-bank lenders and service providers. SBA management agreed with recommendations 1, 3, 4, 5, 6, and partially agreed with recommendation 2.