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Why the high forgiveness rate of PPP loans is troubling to many people


Interesting new data is out on the Paycheck Protection Program, or PPP for short. It gave potentially forgivable government loans to small businesses during COVID, and the data shows the vast majority of those loans have been forgiven. Sacha Pfeiffer of NPR's investigations team is here to explain why that high forgiveness rate is troubling to many people. So, Sacha, people who got these loans were hoping they'd be forgiven. What's not to like about these new numbers, then?

SACHA PFEIFFER, BYLINE: So there is no doubt that these loans were a lifesaver for many companies. And anyone who got PPP funding is probably relieved to hear that 92% of all the loans have been granted full or partial forgiveness so far. That's according to Small Business Administration data released this month. But a lot of that money went to businesses that didn't need it - wealthy celebrities like Khloe Kardashian and Tom Brady, for example. They have companies that each got a PPP loan of about $1,000,000 entirely forgiven. Also, many businesses that thrived during COVID got their loans forgiven, like some manufacturing and construction firms.

MARTÍNEZ: But was it legal for them to take that money?

PFEIFFER: Yes, it was. To qualify for a loan, you just had to say you thought you needed it and to get it forgiven, you did not have to prove the money was necessary. So that meant not only did people get loans they didn't truly need, it also attracted scam artists. Here's how University of Texas finance professor Sam Kruger puts it.

SAM KRUGER: The PPP program seems to have resulted in billions of dollars of fraudulent loans that have ultimately turned into grants.

PFEIFFER: He estimates that $64 billion of the nearly $800 billion in loans show signs of fraud.

MARTÍNEZ: OK, so then why wasn't the government stricter with forgiveness? I mean, couldn't they have tried a little bit harder to weed out fraudsters or told businesses that prosper during COVID to actually just repay the money?

PFEIFFER: I spent a lot of time asking those questions. The simple answer is the government wanted to get a lot of money out there very quickly, and it was willing to accept some waste. It also made forgiveness easy because that's what businesses lobbied Congress for. So auditors have manually reviewed only about 2% of the more than 11 million loans issued. And of that small number of loans reviewed, just 0.2% were denied forgiveness - minuscule. But I want to play something a former Treasury official under President Trump said to me. His name is Michael Faulkender.

MICHAEL FAULKENDER: Because PPP got up and running, we did not realize the catastrophe that could have taken place had we failed. What would breadlines during a pandemic have looked like? Do we want to know? I didn't. And so we were going to get that program up and running.

PFEIFFER: He says the government prioritized speed over accuracy when giving out loans.

MARTÍNEZ: And is it just me, Sacha, or did he sound a little testy?

PFEIFFER: He sounded testy to me, too. I would say he definitely was. And so was an SBA official in the Biden administration named Patrick Kelley. He told me it frustrates him when his agency is criticized over the program because it was just carrying out a law passed by Congress. And he pointed out that Congress voted repeatedly to issue more loans and make them increasingly easy to forgive, even when problems with the program became obvious. Here's Patrick Kelley.

PATRICK KELLEY: It's an easy sentiment to say, well, there goes the government again. Why didn't they do it right? But to me, it ignores the awesomeness of what did get done right. I've met many, many, many, many, many more people who are thankful for their PPP loan.

MARTÍNEZ: OK. So he's focusing on the good the money did. But can any of the PPP loans that went astray be recovered?

PFEIFFER: Well, prosecutors have up to 10 years to chase pandemic fraud, but no one will be asking rich people who didn't need a loan to please give it back. That money is theirs to keep. Meanwhile, PPP has contributed to the federal debt, which recently hit $31 trillion. Paying that down could eventually lead to higher taxes and fewer government services, even for future generations. That's really disappointing to business owners I interviewed, like Roy Thurston. He owns a Cape Cod art gallery that got $14,000 in PPP loans all forgiven. And he said this.

ROY THURSTON: What bothers me is the people that took money that should have known better than to take money. It should have been for people who really needed it.

PFEIFFER: And by the way, that 92% forgiveness rate - it's expected to keep getting higher as more forgiveness requests are processed.

MARTÍNEZ: All right. That's NPR's Sacha Pfeiffer. Sacha, thanks.

PFEIFFER: You're welcome. Transcript provided by NPR, Copyright NPR.

A Martínez
A Martínez is one of the hosts of Morning Edition and Up First. He came to NPR in 2021 and is based out of NPR West.
Sacha Pfeiffer is a correspondent for NPR's Investigations team and an occasional guest host for some of NPR's national shows.