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A man admitted in federal court in New Jersey that he participated in a scheme to fraudulently try to obtain nearly $7 million in Paycheck Protection Program loans, the Associated Press reported. Gregory Blotnick pleaded guilty Wednesday to wire fraud and money laundering. Blotnick, who lives in New York and Florida, submitted 21 fraudulent PPP loan applications to 13 lenders on behalf of nine purported businesses that Blotnick controlled from April 2020 through March 2021, according to court documents. The forgivable loans were created to help small businesses retain jobs and cover other expenses during the coronavirus pandemic. Blotnick falsified employment and income records and managed to obtain $4.6 million in funds, prosecutors said. They said he transferred the money into brokerage accounts from which he placed more than approximately $3 million in losing stock trades. The charge of wire fraud carries a maximum potential penalty of 20 years in prison and a fine of the greater of $250,000, twice the gross profits or loss, whichever is greatest, prosecutors said. The charge of money laundering carries a maximum penalty of 10 years in prison and a $250,000 fine, or twice the gross gain to the defendant or gross loss to the victim, whichever is greatest. His sentencing is scheduled for March 2022.

From the very start of the Paycheck Protection Program last year, it was clear that minority entrepreneurs, especially Black business owners, struggled more than white borrowers to find a willing lender. A new research project indicates that the problem was particularly pronounced at smaller banks — and human bias appears to be the main reason, the New York Times reported. The majority of Black borrowers who received aid from the $800 billion relief program got their loan from a financial technology company, not a bank, according to an economic working paper released yesterday. The skew toward those so-called fintechs was far sharper among Black borrowers than any other racial group. It turned out that the automated loan vetting and processing systems used by the fintechs, as well as some of the nation’s biggest banks, significantly improved approval rates for Black borrowers, the researchers found. They didn’t find such stark gaps for any other racial group they examined, including Asian and Hispanic applicants. The findings come amid growing scrutiny of how algorithmic systems can inadvertently perpetuate biases. Regulators like the Consumer Financial Protection Bureau are examining whether lenders using such systems run afoul — even inadvertently — of fair-lending laws. A trade group for small banks, the Independent Community Bankers of America, defended its members, saying community lenders “outperformed the rest of the banking industry in serving minority-owned, women-owned and veteran-owned businesses.”

Jennifer Condron’s BulletProof Productions LLC got a $350,000 loan backed by the U.S. Small Business Administration in 2019, before the COVID-19 pandemic shut down entertainment venues and dried up their revenue. Under these extraordinary circumstances, the agency issued guidance in early March 2020 that encouraged lenders participating in its 7(a) program to allow deferred payments for six months and beyond, Bloomberg Law reported. But the latest extension of that policy, one of the last remaining forms of pandemic relief for businesses, expires at the end of September. Borrowers without the means to pay back the loans because of the pandemic, such as those that relied on foot traffic from people working in offices, will have few options to stop lenders from demanding payments, small-business attorneys say. Condron’s bank has already tried taking her to court, which in turn caused her to be rejected by a federal pandemic-relief fund for shuttered entertainment venues. She has already exhausted both a Paycheck Protection Program (PPP) loan and a Economic Injury Disaster Loan (EIDL). Now, her hopes hinge on winning an appeal for the entertainment venue grant before she has to declare bankruptcy. More defaults and bankruptcies are likely unless the agency — or Congress — steps in. The SBA’s 7(a) program provides government-guaranteed loans for small businesses that otherwise can’t get loans from banks because of thin credit files or other risk factors. Before the pandemic, it was the agency’s most popular program. Since fiscal year 2008, it has approved about 730,000 loans worth more than $270 billion. Typically, an owner will put up valuable personal assets as collateral in the form of vehicles or real estate. All programs but EIDL have expired, and without an updated policy in place, “we are going to see some lenders moving to enforce these loans that are delinquent,” said Davis Senseman, attorney and founder of Minnesota-based small-business advocacy law firm Davis Law Office. Jason Milleisen, owner and operator of Distressed Loan Advisors, who consults for small businesses with defaulted SBA loans, said delinquencies and defaults will likely come in November or December. 

Small businesses seeking cash to help them weather the pandemic can now borrow up to $2 million from the federal government, after the Biden administration said yesterday that it would lift a $500,000 cap on disaster relief loans, the New York Times reported. Those that took smaller Economic Injury Disaster Loans will be able to apply for increases, although the Small Business Administration said that it will not start approving requests for more than $500,000 until Oct. 8. Any loans taken out this year will also come with a two-year deferral on repayments, allowing struggling businesses some time to catch up on their bills, the agency said. Loans can also now be used to refinance existing debt. The loan program “offers a lifeline to millions of small businesses who are still being impacted by the pandemic,” Isabella Casillas Guzman, the agency’s administrator, said in a statement. So far under the program, the Small Business Administration has made 3.8 million loans, totaling $263 billion. The amount that small companies and nonprofit organizations can borrow is based on their revenue and expenses; they are now eligible for loans equivalent to roughly two years’ of their operating costs, up to the $2 million limit. Fearing that a flood of borrowers would quickly deplete the program, Small Business Administration officials quietly limited the size of loans to $150,000 early in the pandemic. The cap was raised to $500,000 after President Biden took office. The low-interest loans, made directly by the government, can be repaid over a term as long as 30 years, and can be used for a wide variety of expenses — including, as of Thursday, paying off higher-interest debt or other federal loans. Businesses had previously been restricted from using the money for such refinancing.

The U.S. Consumer Financial Protection Bureau (CFPB) on Wednesday proposed new requirements for financial institutions to collect and report data on small businesses' access to credit in a bid to boost transparency and fair lending, Reuters reported. The proposed rule would require financial institutions report the amount and type of small business credit applied for and extended, demographic information about small business credit applicants, and key elements of the price of the credit offered, the consumer watchdog said in a statement. The coronavirus pandemic underscored the challenges for U.S. small businesses during a crisis. The vast majority of American small businesses took a hit to their revenue last year, with minority-owned businesses struggling the most and worrying more about accessing credit, a Federal Reserve survey released earlier this year showed. The requirements are a long-awaited part of the broader Wall Street reforms in the wake of the 2008 financial crisis. They would apply to a wide range of products, including term loans, lines of credit, credit cards and merchant cash advances, the CFPB said. The proposed plan will be open to public comment for 90 days before the agency finalizes the rule. While business owners are not required to provide demographic information, lenders will have to collect and report the data when they do. Bank and business groups warned the new requirements could become burdensome for lenders.