In response to concerns from the small business community regarding delays and processing issues with the latest round of PPP funding, the SBA released a procedural notice on 2/10 implementing changes to speed up the loan approval process. As many as 30% of all PPP loan applications have been delayed due to Hold or Error codes as a result of stepped-up front-end compliance and verification checks. Late last week, we covered the issues causing delays with the PPP application process here.
Many of the processing delays are caused by a mismatch of the borrower’s SSN or EIN from a 1st Draw PPP loan, an incorrect criminal record flag, or Erroneous Bankruptcy being returned from the search. Those are a few of the nearly 50 possible Error codes, which fall into 2 categories: Hold Codes and Compliance Check Error Messages.
To alleviate the significant backlog of PPP 1st Draw and 2nd Draw loan applications, SBA has instructed lenders that they can directly certify the eligibility of the borrower and will not be required to provide supporting documentation refuting the error codes until the borrower applies for loan forgiveness. The welcome changes should speed up the processing of loan applications and provide small business borrowers with much needed liquidity while also protecting taxpayer funds from fraud and abuse that plagued the PPP program during 2020. SBA has delegated authority to lenders to approve PPP loan applications after the lender obtains, reviews, and retains in its file supporting documentation sufficient to resolve all outstanding Hold and/or Compliance error codes. An authorized official from the lender will be required to certify the borrower provided information and supporting documentation to satisfactorily resolve all Error codes flagged with the borrower’s loan application. If the lender is unable or unwilling to resolve all Compliance Check Error Messages or Hold Codes, except for those codes that require SBA resolution, the lender will be required to withdraw the loan application from the SBA platform.
Borrowers and small businesses should take the time necessary to prepare their application properly the first time, and be patient when working with the lender. This round of PPP funding was rolled out very quickly, and in some cases the lender is in the dark regarding error resolution and next steps. SBA has taken a welcome first step in providing more guidance, and we expect SBA to roll out additional upgrades beneficial to the program.