Paycheck Protection Program (PPP) Loan Guaranty Purchases

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Program level Payment Integrity results

Sponsoring agency: Small Business Administration

View on Federal Program Inventory

PROGRAM METRICS

$8,274 M

in FY 2023 outlays, with a

50.9%

payment accuracy rate

PROGRAM METRICS

$6,792 M

in FY 2024 outlays, with a

75.3%

payment accuracy rate

PROGRAM METRICS

$1,398 M

in FY 2025 outlays, with a

86.7%

payment accuracy rate

  • Improper payment estimates over time
    View as:

    Chart toggle amounts:
    Proper payments
    Overpayment
    Underpayment
    Technically improper
    Unknown

Payment Integrity results

  • FY 2023 improper payment estimates

    Chart legend and breakdown

    Payment accuracy rate

    Improper payment rate

    Unknown payment rate


    Sampling & estimation methodology details

    Sampling timeframe:

    04/2022 - 03/2023


    Confidence interval:

    95% to <100%


    Margin of error:

    +/-3.0

  • Actions taken & planned to mitigate improper payments

    Mitigation strategy Description of the corrective action Completion date Status
    Training
    Training was provided to SBA review staff on the following topics and issues related to PPP Guaranty purchase. -Review of Borrower Certifications -Identity of the Borrower -Existence of the Business on February 20, 2020 -Documentation that the Borrower had employees -Documentation of average monthly payroll -Making a decision about the adequacy of the supporting documentation -Different requirements for 1st Draw and 2nd Draw PPP loans
    FY2023 Q4
    Completed
    Training
    SBA will continue to provide training to review staff on topics and issues related to PPP Guaranty Purchase.
    FY2024
    Planned

Overpayments

The PPP loans can be forgiven if the funds are used for payroll costs, interest on mortgages, rent, utilities, or other eligible expenses. If the loan is not forgiven, SBA may purchase (honor) all or part of the PPP loan guaranty. Lenders may request that SBA purchase the guaranty of a PPP loan in the event of a default or other qualifying event. A lender must have made certain certifications about the loan and supporting information. SBA reviews the lenders’ requests for guaranty purchase and charge-off in accordance with PPP Loan Program Requirements. The SBA will honor its guaranty and purchase 100 percent of the outstanding balance of the loan provided that the lender has complied with all PPP Loan Program Requirements. SBA reviewed a sample of those PPP loan guaranty purchases for improper payments, after the guaranty was purchased.
Overpayment root cause Overpayment amount
Amount of overpayments within the agency's control $125.77 M
Amount of overpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of overpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
The amount of overpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $125.77 M

Overpayment root cause Overpayment amount
Amount of overpayments outside the agency's control $0 M

Overpayment type Eligibility element/information needed Eligibility amount
Overpayments Within Agency Control Financial $125.77 M

Overpayment type Mitigation strategies taken Mitigation strategies planned
Overpayments within the agency’s control Training Training

Underpayments

Underpayment root cause Underpayment amount
Amount of underpayments $0 M

Technically improper payments

The amount of improper payments that were paid to the right recipient for the correct amount but were considered technically improper because of failure to follow statute or regulation $0.0 M

Additional information

$0 M

Unknown Payment Details

In response to the FY 2023 PIIA Compliance Audit conducted by OIG, the SBA separated PPP into three payment integrity reporting categories – PPP Approvals, PPP Forgiveness, and PPP Purchases, and subsequently initiated the improper payments review process shortly after. SBA generated the loan sample and requested supporting documentation from lenders. In many instances, PPP loans guaranty purchase requests were submitted via SBA’s PPP platform and, although the lenders were required to retain supporting documentation, they were not required to submit that documentation to SBA. SBA requested documentation from lenders for those guaranty purchases that were a part of the sample, with the added instruction to submit the documentation as soon as possible. As a result of the compressed time between documentation requests and reporting improper payment rates, many lenders were unable to provide complete documentation. Those PPP loans with documentation requests outstanding were categorized as “Unknown” payments since SBA did not have sufficient supporting documentation to make a determination as to whether the guaranty purchase payments were proper or improper.

The amount of payments that could either be proper or improper but the agency is unable to determine whether they were proper or improper as a result of insufficient or lack of documentation is $3,940.71 M


Cause of insufficient or lack of documentation & why the documentation is needed for determination of payment type
Payment cause Amount Description of the documentation that was not provided and explanation of why the program is unable to conclude whether the payment is proper or improper without that documentation
Applicants $3,940.71 M Specific documentation was requested, and not provided, to verify the identity of the borrower: -Evidence or attestation that the borrower was an existing customer -Explanation of how lender followed BSA policy to identify borrower -Explanation of how lender used BSA equivalent policy to identify borrower Specific documents were requested, and not provided to verify the monthly payroll amount: -Payroll Processor Records -Payroll Tax Filings -Form 1099-Mics -Income and expenses from a sole proprietorship -Bank records sufficient to demonstrate the qualifying payroll amount Specific documents were requested, and not provided to verify that the business was in Operation on or around February 15, 2020 and/or had employees for whom they paid payroll on or around February 15, 2020. -Payroll Processor Records -Payroll Tax Filings -Form 1099-Mics -Income and expenses from a sole proprietorship -Bank records sufficient to demonstrate the qualifying payroll amount -Payroll statement or similar documentation from the pay period that covered February 15, 2020

Mitigation strategies taken Mitigation strategies planned
Training Training

Evaluation of corrective actions

Managers are held accountable, through annual performance appraisal criteria for payment integrity and meeting the program's Improper Payment and Unknown Payment reduction targets. Performance goals are established annually and include the overall management of the Improper Payment program.

Future payment integrity outlook

Paycheck Protection Program (PPP) Loan Guaranty Purchases has established a baseline.

SBA anticipates that corrective actions--training --will serve to lower the improper
payment rate in the coming year.

Out-Year improper payment and unknown payment projections and target
Current year +1 estimated future outlays $10,069.95 M
Current year +1 estimated future improper payments $142.99 M
Current year +1 estimated future unknown payments $0 M
Current year +1 estimated future improper payment and unknown payment rate 1.42 %
Current year +1 estimated future improper payment and unknown payment reduction target 1.42 %

The program's current year improper payment and unknown payment rate of 49.15 % may or may not be the tolerable rate. The agency has not yet determined the tolerable rate for this program.

The CARES Act established the Paycheck Protection Program (PPP) loans to provide economic relief to small businesses and incentivize small businesses to keep their workers on the payroll because of the COVID-19 pandemic. Funding for this program ended in 2021, with no new funds advanced. As PPP loan guaranties are purchased, outstanding PPP loans will eventually be reduced to a nominal amount. Because of this, no tolerable rate has been established.

The agency has what is needed with respect to internal controls, human capital and information system and other infrastructure to reduce Improper Payments and Unknown Payments.

No additional resources for this program were requested.

Additional programmatic information

None.

  • FY 2024 improper payment estimates

    Chart legend and breakdown

    Payment accuracy rate

    Improper payment rate

    Unknown payment rate


    Sampling & estimation methodology details

    Sampling timeframe:

    04/2023 - 03/2024


    Confidence interval:

    95% to <100%


    Margin of error:

    +/-3.48

  • Actions taken & planned to mitigate improper payments

    Mitigation strategy Description of the corrective action Completion date Status
    Change Process
    None of the choices provided apply to SBA's corrective actions related to this program. Nevertheless, a choice of action is required. Change process is selected as it most closely matches the actions SBA is taking. To recover PPP Loan Guaranty improper payments, the SBA will use processes similar to the process used for its 7(a) guaranty purchase portfolio, which begin with demanding repayment from the lender. Processes are ongoing.
    The corrective action was not fully completed this reporting period
    Not Completed
    Change Process
    None of the choices provided apply to SBA's corrective actions related to this program. Nevertheless, a choice of action and a date are required. Change process is selected as it most closely matches the actions SBA is taking. To recover PPP Loan Guaranty improper payments, the SBA will use processes similar to the process used for its 7(a) guaranty purchase portfolio, which begin with demanding repayment from the lender.
    FY2025
    Planned

Overpayments

PPP Loan Guaranty Purchase payments are reviewed after the guaranty has been paid to the lender. Borrower and lender documentation is reviewed to determine whether the lender is eligible, and whether the amount of guaranty purchase request equaled the amount in SBA systems. SBA also verifies that the lender received borrower certifications, including whether the borrower had been in business on or around February 20, 2020. SBA also checked that the eligible payroll was accurately accounted for.
Overpayment root cause Overpayment amount
Amount of overpayments within the agency's control $1,662.3 M
Amount of overpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of overpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
The amount of overpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $1,662.3 M

Overpayment root cause Overpayment amount
Amount of overpayments outside the agency's control $0.0 M

Overpayment type Eligibility element/information needed Eligibility amount
Overpayments Within Agency Control Financial $1,662.3 M

Overpayment type Mitigation strategies taken Mitigation strategies planned
Overpayments within the agency’s control Change Process Change Process

Underpayments

Underpayment root cause Underpayment amount
Amount of underpayments $0.0 M

Technically improper payments

The amount of improper payments that were paid to the right recipient for the correct amount but were considered technically improper because of failure to follow statute or regulation $0.0 M

Additional information

$0 M

Unknown Payment Details

One loan in the PPP Guaranty Purchase sample was categorized as Unknown. The Lender failed to return documentation to support the guaranty purchase.

The amount of payments that could either be proper or improper but the agency is unable to determine whether they were proper or improper as a result of insufficient or lack of documentation is $16.7 M


Cause of insufficient or lack of documentation & why the documentation is needed for determination of payment type
Payment cause Amount Description of the documentation that was not provided and explanation of why the program is unable to conclude whether the payment is proper or improper without that documentation
Applicants $16.7 M Among the supporting documents the Lender was required to provide to SBA were Borrower Certifications, verification of borrower identity, verification of existence of the business in February 2020, and documentation of the number of employees.

Mitigation strategies taken Mitigation strategies planned
Change Process Change Process

Evaluation of corrective actions

To recover PPP Loan Guaranty improper payments, the SBA will use processes similar to the process used for its 7(a) guaranty purchase portfolio, which begin with demanding repayment from the lender.

Effective corrective actions address the root cause of the overpayments. The predominate reasons for improper payments in PPP Loan Guaranty Purchases were (1) lender’s failure to verify that the borrower was in business on February 20, 2020; lender’s failure to verify average monthly payroll; and, unacceptable or missing identification of the borrower. To recover the SBA will use processes similar to the process used for its 7(a) guaranty purchase portfolio, which begin with demanding repayment from the lender.

Demanding repayment from the lender is the first step in the recovery process. To recover PPP Loan Guaranty improper payments, the SBA will use processes similar to the process used for its 7(a) guaranty purchase portfolio, which begin with demanding repayment from the lender.

Effective corrective actions address the root cause of the overpayments. The predominate reasons for improper payments in PPP Loan Guaranty Purchases were (1) lender’s failure to verify that the borrower was in business on February 20, 2020; lender’s failure to verify average monthly payroll; and, unacceptable or missing identification of the borrower. To recover the SBA will use processes similar to the process used for its 7(a) guaranty purchase portfolio, which begin with demanding repayment from the lender.

Future payment integrity outlook

Paycheck Protection Program (PPP) Loan Guaranty Purchases has established a baseline.

SBA has set a reduction target for PPP Loan Guaranty Purchase at 10.0 percent, the statutory limit, for FY2025. Meeting this reduction target will also bring this program into compliance with the Payment Integrity Information Act (PIIA).

Out-Year improper payment and unknown payment projections and target
Current year +1 estimated future outlays $1,982.1 M
Current year +1 estimated future improper payments $198.21 M
Current year +1 estimated future unknown payments $0 M
Current year +1 estimated future improper payment and unknown payment rate 10.0 %
Current year +1 estimated future improper payment and unknown payment reduction target 10.0 %

The program's current year improper payment and unknown payment rate of 24.72 % may or may not be the tolerable rate. The agency has not yet determined the tolerable rate for this program.

SBA has not established a tolerable rate for PPP Loan Guaranty Purchases as loans under the PPP are no longer being made. With each PPP loan guaranty purchase, the program gets smaller and smaller.

The agency has what is needed with respect to internal controls, human capital and information system and other infrastructure to reduce improper payments and unknown payments to the reduction target.

The agency has what is needed with respect to internal controls, human capital and information system and other infrastructure to reduce improper payments and unknown payments to the tolerable rate.

Additional programmatic information

The CARES Act established the Paycheck Protection Program (PPP) loans to provide economic relief to small businesses and incentivize small businesses to keep their workers on the payroll because of the COVID-19 pandemic. The SBA separated PPP into three payment integrity reporting categories – PPP Approvals, PPP Forgiveness, and PPP Purchases. PPP ended in May 2021. Although no new PPP funds are being disbursed, borrowers may still request forgiveness for a PPP loan and lenders may request guaranty purchase of a PPP loan. SBA is reporting under PIIA on these aspects of the program.
If a PPP loan is not forgiven, the SBA may purchase (honor) all or part of the PPP loan guaranty. Lenders may request that the SBA purchase the guaranty of a PPP loan in the event of a default or other qualifying event. A lender must have made certain certifications about the loan and supporting information. The SBA reviews the lender’s request for guaranty purchase and charge-off in accordance with PPP Loan Program Requirements. The SBA will honor its guaranty and will purchase 100 percent of the outstanding balance of the loan provided that the lender has complied with all PPP Loan Program Requirements.

PPP Loan Guaranty Purchase requests were submitted via SBA’s PPP platform and, although the lenders were required to retain supporting documentation, they were not required to submit that documentation to the SBA. The SBA requested documentation from lenders for those guaranty purchases that were a part of the sample. PPP guaranty purchase samples were reviewed to determine whether the lender was eligible to receive a loan guaranty payment; whether the lender received required borrower certifications; and, whether the PPP loan met all statutory, regulatory, and internal requirements for payment.

Accountability for detecting, preventing, and recovering improper payments

Review standards are established as part of the agency's annual appraisal process. These standards hold managers accountable for meeting applicable reduction targets, preventing improper payments, and promptly detecting and recovering overpayments.

  • FY 2025 improper payment estimates

    Chart legend and breakdown

    Payment accuracy rate

    Improper payment rate

    Unknown payment rate


    Sampling & estimation methodology details

    Sampling timeframe:

    04/2024 - 03/2025


    Confidence interval:

    95% to <100%


    Margin of error:

    +/-3.0

Causes

The predominant cause of improper payments in the PPP Guaranty Purchase Program was lender failure to meet underwriting requirements at loan origination. Specifically, improper payments occurred when lenders did not adequately verify that the borrower was in operation on or around February 15, 2020, or did not sufficiently validate the dollar amount of the borrower’s average monthly payroll for the preceding calendar year. These underwriting deficiencies resulted in guaranty purchases being made on loans that did not fully meet statutory and program eligibility requirements.

Overpayment root cause Overpayment amount
Amount of overpayments within the agency's control $72.3 M
Amount of overpayments outside the agency's control $0.0 M
Amount of overpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $6.83 M
Amount of overpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
Amount of overpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $65.46 M

Underpayment root cause Underpayment amount
Amount of underpayments $0.0 M

The amount of improper payments that were paid to the right recipient for the correct amount but were considered technically improper because of failure to follow statute or regulation $0.0 M

The amount that could either be proper or improper but the agency is unable to determine whether it was proper or improper as a result of insufficient or lack of documentation $113.44 M

Prevention

Because improper payments in the PPP Guaranty Purchase Program originate from lender underwriting deficiencies at loan origination, the agency’s prevention strategy focuses on post-purchase oversight, deterrence, and corrective action rather than pre-payment controls. Through post-purchase quality control and audit reviews, the agency identifies underwriting failures related to borrower eligibility and payroll verification and holds lenders accountable for compliance with statutory and program requirements. These reviews, combined with targeted lender training, internal escalation of deficiencies, and the potential for recovery actions, serve as a deterrent to noncompliance and reduce the likelihood of recurring improper payments. This approach strengthens payment integrity by promoting improved lender underwriting practices even in the absence of additional pre-purchase review authority.
Corrective actions for PPP Guaranty Purchases are structured based on the root cause of the improper payment and the severity of the associated harm to the agency. Improper Payments and Unknown Payments in this program primarily occurred when lenders did not adequately verify borrower payroll information or confirm that the borrower was in business as of the date required by statute. To address these issues, SBA reviewed lender-submitted documentation to validate payroll eligibility and confirm that key business information was accurate. These corrective actions directly target the underlying causes of the improper payments and are proportional to the risk and impact of each deficiency. When improper guaranty payments are identified, SBA initiates recapture actions and requires lenders to provide any missing or clarifying documentation. Planned corrective actions include continuing these recapture efforts and reinforcing the need for lenders to submit complete and timely documentation to support guaranty purchase requests. Collectively, these measures strengthen program oversight and reduce the likelihood of future Improper Payments and Unknown Payments.

Corrective actions for PPP guaranty purchases are implemented and prioritized based on the predominant reason for the Improper Payment, ensuring that the agency’s efforts directly address the underlying cause. These actions focus on strengthening payment reviews and eligibility checks to prevent the recurrence of errors related to payroll verification and borrower business eligibility. When an improper guaranty payment is identified, SBA initiates recovery by demanding repayment from the lender and requiring any outstanding or clarifying documentation needed to substantiate the original eligibility determination.

The agency provides feedback to the lender and applicable SBA employees regarding process and policy errors resulting in the improper payment to ensure consistent understanding and application of program requirements. These corrective actions are adequate to address the root causes of Improper Payments and Unknown Payments and have contributed to improvements in program compliance and payment accuracy. As implementation continues, the actions are expected to further reduce Improper Payments and Unknown Payments within the PPP guaranty purchase program.

Payment type Mitigation strategies taken Mitigation strategies planned
Overpayments Change Process, Training Audit, Training
Unknown payments Audit,Training Training

Eligibility element/information needed Description of the eligbility element/information
Financial The financial position or status of a beneficiary, recipient, or their family

Additional information

Reduction target

5.17 %

The agency has established sufficient internal controls, human capital, and information system infrastructure to manage improper payment risk associated with PPP guaranty purchases at a level where additional investments would not be cost-beneficial. Post-purchase quality control reviews, audit procedures, and statistically valid sampling are used to identify underwriting deficiencies and improper payments, and 100 percent of loans selected for review are completed. Identified improper payments are subject to recovery through the established process once finalized.

In its most recent budget submission, the agency requested the maintenance of current resource levels to support workforce capacity and operational activities necessary to sustain payment integrity during post-purchase review, recovery, and closeout. Based on review results and recovery outcomes, the agency determined that expanding reviews beyond current sampling methodologies or adding additional controls would cost more than the marginal benefit of additional prevented or recovered improper payments. Accordingly, existing controls and resources are assessed as sufficient and appropriately aligned to program risk.

In the most recent budget submission, the agency requested to maintain current resources to support workforce capacity and operational activities required to ensure payment integrity of the PPP Guaranty Purchase Process during testing, recoupment, and closeout. These resources are intended to support staff responsible for post-PPP Guaranty Purchase reviews, improper payment identification, recovery efforts, and closeout activities. Despite overall resource constraints in fiscal year 2025, the program prioritized available staffing and funding to sustain payment integrity functions and ensure compliance through the recoupment and closeout phase.

As a means to reduce and/or eliminate the occurrence of improper payments, a Corrective Action Plan has been developed for the program. In addition, managers are held accountable for meeting the program's improper payment rate and unknown payment rate reductions targets.

$0 M