SBA Ignored Warnings About Loan Servicing System, Subcommittee Chairman Says

The Government Accountability Office warned the Small Business Administration six years ago that its loan servicing system could not handle a large volume of loans – similar to those processed during the past several months under the Paycheck Protection Program – a House subcommittee chairman charged Thursday.

“(The) SBA’s legacy technology systems were not fully equipped to handle the unprecedented level of applicants, resulting in a number of technical issues with the implementation,” Jason Crow (D-Colo.), chairman of the House Innovation and Workforce Development Subcommittee, said in a memo prepared for a subcommittee hearing Thursday.

And the SBA should have known that, Crow said.

He said that in 2014, the GAO said the SBA loan servicing system, known as E-Tran, would not be able to handle a large number of loans.

However, during a subcommittee hearing Thursday, William Manger, chief of staff and associate administrator in the SBA’s Office of Capital Access, defended the agency’s work and its loan processing system.

“I am very proud of the SBA staff,” he told the subcommittee, adding that in a matter of weeks, the SBA added 3,700 lenders to the SBA system. He said that while new servers and memory have been added, the processing system can handle the loan applications.

“There were times that the system slowed down,” Manger said. “At no time did the program crash.”

Nonetheless, many lenders, including credit unions, have expressed frustration with the loan application and loan forgiveness processes.

In his memo, Crow disputed the claim that the PPP system did not crash.

“The expedited turn-around resulted in a lack of attention to important technical controls within the PPP portal,” he said. “The day the portal launched, it went offline for four hours during which time lenders could not submit borrowers’ applications.”

When the PPP portal was re-launched following the first round of loans, it again crashed, Crow said.

He added that despite the GAO’s warning that the E-Tran system could not handle a large number of loans, the SBA chose to continue to use it rather than replace it.

“E-Tran was a cumbersome tool to use for lenders, there was a lack of training on how to properly use the portal, and the data released from the tool contained inaccuracies,” Crow said.

He added that E-Tran requires manual data entry for both the loan application process and the loan forgiveness process.

“This cumbersome process forced lenders to pull all-nighters in order to input borrowers’ information into E-Tran (manually) which led to a high percentage of human error,” Crow said in the memo.

A review of GAO reports on the SBA showed that in September 2014, the GAO warned the agency that its response following Hurricane Sandy indicated that it might not be prepared for future disasters.

“Without taking its experience with early application submissions after Hurricane Sandy into account in its disaster planning documents and analyzing the potential risk early submissions may pose for timely disaster response, (the) SBA may be unprepared for a large volume of applications to be submitted quickly following future disasters, which may result in delays in loan funds for disaster victims,” GAO said in the report.