PPP loans to supposed farms flowed into shoreline front operations instead
09/13/2021 // Nolan Barton // Views

Dozens of Paycheck Protection Program (PPP) loans to supposed farms flowed into the shoreline communities of Ocean County, New Jersey last year.

"Ritter Wheat Club" and "Deely Nuts," supposedly a wheat farm and a tree nut farm, each got $20,833, the maximum amount available for sole proprietorships. "Tomato Cramber" up the coast in Brielle got $12,739, while "Seaweed Bleiman" in Manahawkin got $19,957.

None of these entities exist in New Jersey's business records, and the owners of the homes at which they are purportedly located expressed surprise when contacted by ProPublica, a non-profit newsroom that produces investigative reports. "Beefy King," an entity categorized as a cattle ranch, was registered in PPP records to the home address of Joe Mancini, the mayor of Long Beach Township.

"There's no farming here. We're a sandbar, for Christ's sake," said Mancini, adding that he had no cows at his home, just three dogs.

All of these loans to nonexistent businesses came through Kabbage Inc., an online lending platform that processed 297,587 PPP loans worth around $7 billion before the first round of funds ran out in August 2020, second only to Bank of America.

ProPublica found 378 small loans totaling $7 million to fake business entities, all of which were structured as single-person operations and received close to the largest loan for which such micro-businesses were eligible. Most of the fake business entities are categorized as farms – from potato fields in Palm Beach to orange groves in Minnesota.

The PPP, signed into law as part of the CARES Act on March 27 last year with an initial $349 billion in funding, was created to keep small businesses on life support while they were forced to shut down operations due to the coronavirus (COVID-19) pandemic. The Small Business Administration (SBA) launched the program on April 3 last year and its budget – after two extensions – has added up to $788 billion.


Under the PPP, big banks, community lenders and fintech companies have dispensed millions of government-backed loans to small businesses hurt by the pandemic lockdowns. If borrowers spend the money on payroll and other business expenses, the government repays the lender on behalf of the borrower. (Related: Banks could get up to $24 billion in "free money" from the CARES Act.)

However, the SBA lacked even the most basic safeguards to prevent opportunists from submitting fabricated documentation.

SBA may have approved loans for 55,000 ineligible businesses

Hannibal "Mike" Ware, the SBA's inspector general, estimated in January that the federal agency approved loans for 55,000 potentially ineligible businesses, and that 43,000 obtained more money than their reported payrolls would justify. (Related: Can you say "fraud?" Large companies stepping in to take coronavirus relief loans meant for SMALL businesses.)

The Department of Justice (DOJ), relying on special agents from across the government to investigate, has brought charges against hundreds of individuals accused of gaming pandemic response programs.

Drawn by generous fees for each loan processed, Kabbage was among a band of online lenders that joined in originating loans through their automated platforms. Lenders would get a fee of 5 percent on loans worth less than $350,000, which would account for the vast majority of transactions. The loans were government-guaranteed, and processors bore almost no liability as long as they made sure that applications were complete.

ProPublica examined SBA loans processed by several of the most prolific online lenders and found that Kabbage appears to have originated the most loans to businesses that don't appear to exist and the only concentration of loans to phantom farms.

Three people with knowledge of the matter told Reuters that the DOJ is investigating whether financial technology companies, including Kabbage, may have erred while distributing billions of dollars in pandemic aid to struggling small businesses.

The investigation, led by the DOJ's civil division, is examining whether Kabbage and other fintech companies miscalculated how much aid borrowers were entitled to from the PPP due to confusion over how to account for payroll taxes, the three people said.

A fourth person with direct knowledge of the matter told Reuters that a number of fintech companies were being probed over the PPP tax issues but declined to provide names.

Fintech companies have attracted government scrutiny because they processed loans at high speed using software that in some cases had glitches, causing errors in applications. SBA data showed fintech companies have issued around $26.5 billion worth of PPP loans.

The basic innovation behind the burgeoning fintech industry is automating underwriting and incorporating more data sources into risk evaluation, using statistical models to determine whether an applicant will repay a loan.

Millions of applicants are still seeking PPP loan

Millions of applicants are still seeking money from lenders making the government-backed loans.

Hundreds of thousands of people are waiting to find out if their approved loans – some of which have been stalled for months because of errors or glitches – will be funded. Lenders are overwhelmed, and borrowers are panicking.

"Some of our lenders have been getting death threats," said Toby Scammell, the chief executive of Womply, a loan facilitator that has nearly 1.6 million applications awaiting funding. "There's a lot of angry, scared people who were really counting on this program and are afraid of being shut out."

More funding seems unlikely. Congress extended the program in December and March, but there is little indication that it will do so again.

The relief program had been scheduled to keep taking applications until May 31. But earlier this month, the SBA announced that the program's $292 billion in financing for forgivable loans this year had nearly run out and that it would immediately stop processing most of the new applications.

The SBA also decided that the $9 billion remaining money would be available only through community financial institutions (CFIs) – a small group of specially designated institutions that focus on underserved communities. Those organizations specialize in reaching businesses owned by women and minorities, a priority for the Biden administration.

"Community-based financial lenders play a key role in generating economic growth and opportunity in some of our most distressed communities," Patrick Kelley, the head of the SBA's Office of Capital Access, said in a written statement. "In just over seven days, more than 450 CFIs have processed over 273,000 Paycheck Protection Program applications totaling $4.6 billion, more than 50 percent of the $9 billion remaining one week ago."

Follow Pandemic.news for more news and information related to the coronavirus pandemic.

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