Insights Jun 16, 2021

PPP Loan Fraud Analysis

Todd Glasco

Analyzing the PPP Loan Program with a Focus on Fraud

 The SBA, as well as local banks, put several mechanisms in place to prevent fraudulent activity during the pandemic. The SBA has done a tremendous job in a very difficult situation in terms of fraud prevention, having disbursed nearly $800 billion in PPP loans (as of 5/23/2021), but approximately as much as $70 billion may still have been lost to fraud.

Dashboard built using publicly available datasets provided by the FTC¹, ProPublica², and others³

ArdentMC seeks to offer its AI/ML expertise to utilize data for predictive analysis purposes as a tool to aid in the process deterring or greatly reducing fraud in these situations.  For this situation Tableau was employed as the software utilized to illustrate the data analysis.

Traditionally, The Small Business Administration performed the role of guarantor for the lender of the loan, generally a local bank. The guarantee is designed to make it easier for the bank to approve a loan to a borrower whose credit worthiness might fall below the normal qualifying criteria. 

Generally, the loan amount is under $50,000 and is for a new or a growing business. SBA will normally guarantee 50% to 85% of an eligible loan.  Because the SBA doesn’t act as a direct lender banks and other participating lenders decide whether to approve a loan application. When an application is approved the bank makes application to the SBA for the guarantee. This entire process takes 30-60 days in normal times.  

The Covid-19 crisis created an environment that was drastically different for everyone, this includes banks as well as the SBA. The Paycheck Protection Program (PPP) Loan was created in response to the crisis. It is designed to get funds to small businesses quickly to enable small businesses to stay open during the crisis and avoid reductions in staff which would exacerbate unemployment.  

The PPP loan amount is 2.5 times average monthly payroll up to $10 million. Some or all certain loans (generally under $150,000) may be eligible for loan forgiveness under the PPP loan forgiveness program.  

Because of the speed in which the crisis funding would take place along with the amounts of the loans being offered and the effect of the crisis on the economy, the risk of fraud is greatly increased. 

Even though this crisis appears to be easing up slowly, the crises highlighted the interdependencies of global risk that has had a permanent effect on all aspects of life including both economies as well geopolitics. It’s no longer a matter of if there will be a future global crisis, but when and in what form. That being the case this we can expect opportunities for more fraud to also arise as well as the need to employ as many solutions to meet it as possible.


¹Federal Trade Commission: Consumer Sentinel Network Data Book 2020

²ProPublica: Tracking PPP

³Alleged PPP Fraud Case Database