I. Congress Must Allocate All Recovered Funds and Approve Additional SBA COVID EIDL Funding for All Pending Applications, Applications in the Reconsideration or Appeal Process, New Applications and Grants
On May 5, 2022, the SBA announced that its COVID-19 Economic Injury Disaster Loan (EIDL) program has run out of funding. Due to the lack of funding, on May 6, 2022, the SBA stopped processing all pending EIDL applications, requests for reconsiderations and appeals on previously denied applications, and loan increase requests.
There is currently no public information on the number of EIDL applications and requests for reconsideration or appeal that were pending at the time SBA funding for COVID EIDL program ran out. However, since the deadline for new applications was December 31, 2021, the SBA knew it had a finite number of applications, reconsiderations, and appeals that could have been approved for COVID EIDL funding thereafter. Based on the known approval rate and average loan approval size, the SBA could have easily set aside adequate COVID EIDL funds for pending applications, reconsiderations, and appeals.
Instead, the SBA focused on approving COVID EIDL increase requests for businesses that had already received funding, which hastened the depletion of the remaining COVID EIDL funds.
II. Congress Must Investigate the SBA For Gross Mismanagement of the COVID EIDL Program
While the scale of the government programs to combat the economic impact of the COVID pandemic were unprecedented, the grift that took place and continues to take place was foreseeable and preventable. Moreover, the SBA enabled thousands upon thousands of businesses to exploit the COVID EIDL program by failing to establish protocols or to enforce protocols already in place and approving additional funding for businesses that did not need it. At the same time, the SBA failed to educate and train SBA its overwhelmed staff on the COVID EIDL process, which resulted in delayed or outright denial of COVID EIDL approvals for thousands of small businesses that truly needed COVID EIDL funding.
A. The SBA’s Own Oversight Failures Resulted in Disbursement of Billions of EIDL Funds to Fraudulent or Ineligible Recipients.
In May 2021, the Office of the Inspector General (OIG) issued a report to the SBA that it had discovered that the SBA had distributed over $6.5 Billion in EIDLs and Advance Grants on applications related to an identity theft complaint.
Then, in November 2021, the OIG issued a report to the SBA that it had discovered that the SBA had distributed over $3.5 Billion in EIDLs and Advance Grants to individuals already on the Treasury Department’s “Do Not Pay” List. $1.2 Billion of this amount overlapped with the previously identified $6.5 Billion in fraudulent disbursements, leaving $2.3 Billion in funds distributed to person on the “Do Not Pay” list.
Therefore, in total, the SBA disbursed $8.8 Billion in EIDL funds on fraudulent applications and to otherwise ineligible recipients, which easily could have been prevented by following protocols already in place. Using the average COVID EIDL approval amount of $70,500 noted above, that $8.8 Billion could have funded an additional 124,000+ small businesses with an average COVID EIDL.
B. The SBA COVID EIDL Program Was Understaffed and Those Tasked With Processing Applications and Working With Applicants Were Untrained, Unknowledgeable, and Unhelpful
Any person who contacted the SBA with questions regarding their COVID EIDL application, whether it be a status update or question regarding information or documentation needed by the SBA, will tell you that the SBA provided little to no help in the COVID EIDL process. A person could call the SBA ten times in one day and receive ten different answers to the same question, and customer service could not answer questions specific to the person’s applications. An email to the SBA would receive an auto-reply that failed to specifically address the question posed, and, more often than not, the question would never be addressed by the SBA. Other failures included:
The notes and information added by the SBA to a person’s file were inaccurate, as confirmed through the SBA’s responses to inquiries from Congresspersons. In its responses, the SBA purported to cut and paste the SBA’s notes from the person’s file, but that information was grossly inaccurate and likely created out of thin air by the SBA;
The SBA would fail to place documents uploaded by the applicant to the SBA EIDL portal into the applicant’s file, so applications were being processed without reviewing all documents provided by the applicant;
The SBA would request the same documents more than once, despite the applicant previously providing them in a timely manner via the SBA EIDL portal, resulting in further delays;
Applications and reconsiderations took substantially longer than the SBA’s stated timeframes for processing applications and reconsiderations; and
Application and reconsideration denial letters failed to provide any details as to why they were denied and what specific information or documentation was needed for approval, and the SBA failed to respond to questions seeking clarification.
While it is understandable that there would be issues in first months of the COVID EIDL program, these issues remained persistent until the SBA stopped processing applications, reconsiderations, appeals, and loan increase requests in May 2022, over two years later.
C. The SBA Turned the COVID EIDL Program Into A Debt-Refinancing Program
In September 2021, SBA Administrator Isabella Casillas Guzman announced that the SBA was increasing the maximum COVID EIDL amount from $500,000 to $2 Million – a massive increase considering the average COVID EIDL was approximately $70,000-$80,000. In addition, the SBA expanded the eligible use of COVID EIDL loans to include prepayment of commercial debt, including preexisting debt, and payment of federal business debt, such as loans received through the Paycheck Protection Program.
1. Approval of Requests for COVID EIDL Loan Increases Were Not Need-Based
To receive a COVID EIDL increase, there were only three requirements: 1) the business had already been approved for a COVID EIDL; 2) the requested loan amount was less than or equal to two times business’ gross profit for 2019; and 3) the business and its owners had sufficient collateral. However, there was no requirement to show that the amount of the increase requested was directly related to losses attributable to the COVID pandemic. Thus, businesses whose revenues have essentially recovered from the COVID pandemic could still receive COVID EIDL increases and could use those funds to pay off debt that preceded the COVID pandemic.
This reminds me of the scene in It’s a Wonderful Life when there is a run on the Bailey Building and Loan. George Bailey and his new wife, Mary, offer to use the money they received as wedding gifts to help their customers survive the run on the bank until more cash was available. On the one hand, there was the little old lady who asked for just $17.50. On the other hand, there was the ornery man who asks for the entire balance of his account, leaving substantially less for everyone else who were just asking for enough to get by.
2. Over 30% of the COVID EIDL Funds Approved After October 9, 2022 Were For Loan Increase Requests Over $1 Million
When the SBA announced the COVID EIDL cap increase from $500,000 to $2 Million, it also announced that from September 8, 2021 to October 8, 2021 the SBA would only process and approve loans for less than $500,000. However, the average timeframe for initial approval of COVID Applications was greater than 30 days. Thus, without specifically setting aside COVID EIDL funds for initial approvals, it was inevitable that loan increase requests for 5 to 20+ times the average COVID EIDL approval amount would exacerbate exhaustion of the remaining COVID EIDL funding.
According to data from usaspending.gov, since October 9, 2022, the SBA has approved over 16,000 requests for COVID EIDL increases to the maximum $2 Million amount, 7,000+ requests for loan increases to between $1.5 Million and $2 Million, and another 9,000+ requests for loan increases to between $1 Million and $1.5 Million. Even if each of these recipients had been previously approved for the $500,000 maximum COVID EIDL amount, then these loan increase approvals equal the following:
16,000+ approvals for the maximum $2 Million = At a minimum, $24 Billion (16,000 x $1.5 Million)
7,000+ approvals for between $1.5 Million and $2 Million = At a minimum, $7 Billion (7,000 x $1 Million)
9,000+ approvals for between $1 Million and $1.5 Million = At a minimum, $4.5 Billion (9,000 x $500,000)
That is a minimum of $35.5 Billion in approved COVID EIDL increases for an additional $500,000 to $1.5 Million in funding for these 32,000+ businesses that had already received up to $500,000 in COVID EIDL funding (an additional $1.1 Million per business). Moreover, that $35.5 Billions equals the following:
Almost 10% of the $378 Billion in COVID EIDL funds the SBA approved during the entire COVID pandemic.
Over 30% of the $108 Billion in COVID EIDL funds the SBA approved since October 2021.
Meanwhile, as of September 29, 2021, the average COVID EIDL approval amount had been just over $70,500 (3,832,238 EIDLs approved and $270,493,757,215 EIDL funds approved). See https://www.sba.gov/document/report-covid-19-eidl-reports-2021
III. Congress Must Do Its Part to Hold SBA Leadership for the Gross Mismanagement of the COVID EIDL Program
When Congress signed the CARES Act into law on March 27, 2020, the COVID EIDL program’s purpose was to help small businesses weather the economic impact of the COVID pandemic. Two years later, thousands of small businesses continue to struggle because of the SBA’s waste and mismanagement of the funding approved by Congress for COVID EIDL program. While these businesses were denied meager initial loan requests or smaller increases, the SBA was allowing the larger small businesses to refinance their pre-pandemic debt under the guise of COVID relief. Just because COVID funding was approved by Congress, it does not mean that the SBA should change the maximum loan amount and eligible uses of the funds in order to dole out the entire amount approved by Congress. These decisions by Administrator Guzman are fiscally irresponsible and Congress must look into the matter further, including auditing the applications and approvals of COVID EIDLs of $1 Million or more.
