SBA's nonbank lending program faces scrutiny over fraud risks

The Washington Business Journal flags SBA IG findings that nonbank lenders contribute to widespread Paycheck Protection Program (PPP) loan fraud. Nonbank lenders, who issued $61 billion in PPP loans, were found to be five times more likely than traditional banks to process fraudulent loans, accounting for $14 billion in suspected fraud. Lawmakers, including Sen. Joni Ernst, have criticized the SBA’s oversight, citing inadequate vetting processes and reliance on lenders’ self-regulation during the pandemic. Despite pushback, the SBA has continued to extend nonbank licenses, prompting calls for stricter oversight and accountability.

Proposals to enhance oversight include risk-based reviews of lenders and stricter compliance measures for licensing. As nonbank lenders remain critical to SBA programs like 7(a), maintaining trust in taxpayer-backed initiatives will require a careful overhaul of governance and transparency practices.