Understanding PPP Loan Delays

Looking for something specific? Search for it here:

Who is involved in the PPP loan process?

To understand PPP loan delays, it helps to know who is involved in the process, and what their roles are.

 

There are three entities directly involved in PPP loans:

  • 1. The borrower
    • The business or person applying for a PPP loan (example: a self-employed person, an LLC with many employees, etc.)
  • 2. The lender
    • The SBA-approved institution that receives applications, submits those applications to the SBA, and provides funds to the borrower (example: a bank or credit union)
  • 3. The Small Business Administration (SBA)
    • The government agency that administers the Paycheck Protection Program (PPP). They review every application before telling the lender whether the application is approved or rejected.

Why are there PPP loan delays?

The most frequent source of delay is due to borrower error. Here are some of the most common problems that could cause your PPP loan to become delayed:

 

  • Basic info problems: Providing incorrect information on your application
    • Mismatched or incorrect business info (addresses don’t match, etc.)
    • Incorrect tax ID (Social Security Number, EIN)

 

  • Documents:
    • Providing incorrect or insufficient documents
      • Example: a 1099-MISC does not satisfy the requirement for a 1040 with Schedule C for self-employed/independent contractors
    • Incomplete documentation provided
      • Example: a Schedule C alone is not sufficient without your 1040 filing
    • Low quality document
      • You must provide a high quality digital scan of all documents. If it can’t be read by software then your application will definitely be rejected and could possibly be delayed

 

  • Not completing all the required steps:
    • You have to make sure you get all the way through your application, review it, and sign it

If I avoided all potential borrower errors, could my PPP loan still be delayed?

While borrower errors are the biggest sources of delay, lender delays and SBA delays can sometimes occur.

 

Lender delays

 

Lender delays usually occur for the following reasons:

  • The borrower application is complex
    • Complex applications take more time and require more scrutiny
  • The borrower’s application had errors or inconsistencies
    • Many lenders run their own analysis on applications prior to submission to the SBA for approval. Errors at this stage can require back and forth with the borrower to get clarification, and in most cases require the filing of a corrected application
  • The application was rejected by the SBA with a hold code
    • The SBA has added new checks to minimize program fraud. Some of these checks mean the application will be cancelled. Others can be corrected, but that requires extra effort by lenders

 

SBA delays

 

The SBA must approve every single PPP loan, which means there may be some inherent SBA delays.

 

Additionally, the SBA was criticized for having an unacceptable rate of PPP fraud in 2020. The changes they instituted this year to prevent fraud have increased the time it takes for them to process loans. As a result, even perfect applications often take a few days for SBA approval. If there are errors with the borrower’s application then delays can increase significantly.

If there's something wrong with my application, will the lender tell me what it is?

An important thing to keep in mind is that lenders must comply with their legal obligations when communicating with borrowers. This often results in lenders not telling the borrower what went wrong or what to do about it.

 

Under the law, there’s very little that lenders can tell borrowers about their particular application. For example, even if it’s obvious to the lender that a borrower is not eligible for PPP, the lender will not tell them that directly. The lender does not want to incur liability if their conclusion was incorrect. This creates a frustrating experience for borrowers who mistakenly believe they’re eligible but continue to be declined and told by that lender “you may be able to re-apply elsewhere.” 

 

In all cases it’s up to you as the borrower to determine your eligibility, understand the rules, and apply correctly.