SBA Suspends Nearly 7,000 Minnesota Borrowers Over Suspected Pandemic Loan Fraud

(KNSI) – The U.S. Small Business Administration has suspended nearly 7,000 Minnesota borrowers over suspected fraudulent activity related to pandemic-era loans.

The affected programs include the Paycheck Protection Program (PPP), designed to help struggling small businesses during COVID, and the Economic Injury Disaster Loan (EIDL) program. The agency identified the borrowers during a review of potentially fraudulent loans in the programs, which were administered directly by the Small Business Administration. No charges have been announced yet.

CEO of Falcon National Bank, a preferred small business lender, John Herges, explained to KNSI that the suspensions target the two specific pandemic programs that were implemented with minimal oversight during the COVID crisis. “These two programs, in particular, the PPP [Paycheck Protection Program] program and the EIDL [Economic Injury Disaster Loan] program, they were both rolled out in haste. If you could fog a mirror, you could get a loan, very little oversight. And so that’s a recipe for the kind of thing that we’re experiencing.”

Herges noted the Small Business Administration’s traditional lending programs remain operational. “That’s the traditional, their bread-and-butter loan program is the 7A program. And to the best of my knowledge, this whole thing has no impact on them.”

Herges expressed concern that the fraud cases could damage the reputation of SBA programs generally, despite their longstanding value to legitimate small businesses. The suspended borrowers are blocked from accessing all other SBA loan programs pending the outcome of the investigation.

He confirmed that all Paycheck Protection Program loans made by Falcon National Bank have been forgiven, and the bank had no involvement in the Economic Injury Disaster Loan program.

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