C-Suite Wednesday –  PPP Loan Risk Management

June 10, 2020

By Caity Witucki
Contributing Editor, C-Suite Wednesday

C-Suite Wednesday –  PPP Loan Risk Management

In March, the lending industry responded to the federal government’s urgent request to facilitate the funding of Paycheck Protection Program (PPP) loans. Most participating lenders went above and beyond to get money out to small businesses affected by the coronavirus pandemic. However, these valiant efforts will not shield lending institutions from SBA OIG scrutiny in the future. Now that PPP lending has slowed down, risk managers should take some time to address any problems that have already arisen and prepare for the next phase of the PPP process.

Lyn Farrell, a Regulatory Strategy Advisor for Hummingbird, recommends three clear steps to take to prepare for any scrutiny:

1. Clarify What Happened

Farrell suggests that lending institutions create a document that explains in an orderly and narrative fashion when policies went into effect and the institution’s response to those policies. Additionally, If a lender had to change a procedure after they started to process PPP loans, they should explain why that was the case.

2. Prepare for the Next Phase

To prepare for the PPP loan forgiveness phase, Farrell recommends implementing training and adopting proactive risk management practices like testing and daily monitoring of activities. 

3. Remedy anything that can be fixed now

Farrell says lending institutions should review their portfolio for anomalies.  If the lending institution discovers serious issues or fraudulent behavior that was not caught earlier, they should consult attorneys who are familiar with SBA OIG procedures before acting. 

“While these are time-consuming steps, they will prove themselves to be valuable in the future,” says Farrell. “We all know that actions can look reasonable and innocent when they occur but be misconstrued by later investigations or reviews. Nailing down the truth now will pay off in the long run.”

American Banking Association