Thousands of ‘mystery’ businesses got PPP loans, new study finds

HACKETTSTOWN, NJ, October 12, 2022 /PRNewswire/ — About 11% of all Paycheck Protection Program loans were issued to “mystery” businesses – businesses whose existence could not be confirmed by comparison with existing listings of companies from other sources, according to a new study by SMR Research Corp.

About 11% of Paycheck Protection Program loans went to businesses whose existence could not be confirmed by public records.

Businesses that could not be confirmed took out 606,881 loans worth $37.6 billion. Additionally, according to SMR, 37,124 of those businesses showed an address in a residential home — but where the business claimed to have five or more employees.

“For many companies, there will be innocent explanations for both of these findings,” the SMR president said. Jim Kasprzak. “But certainly the large numbers imply the possibility of fraud which should be investigated.”

SMR maintains a database of over 34 million US businesses, chain stores, schools, and government facilities. The database is compiled from public records such as state corporation records, city business registration files, state and local inspection and licensing files, and other sources. In total, SMR uses nearly 500 sources.

In the PPP study, SMR did not examine loans made to the self-employed or sole proprietors. He focused on 5.4 million loans made to corporations and partnerships. SMR has excluded loans in a few states where SMR company coverage is significant but not fully comprehensive.

SMR compared the 5.4 million businesses to its existing files in each of the three time periods to see if another source could confirm the existence of a business.

“For example, a company based in Texas with a PPP loan should also be found in the Texas the state corporation records the files in 2020, 2021, or 2022,” Kasprzak said. “Some were just not there, which suggests that sometimes the corporation names were just made up.”

In many cases, Kasprzak noted, the match failure could be due to mis-spellings of company names or addresses – although SMR has used a number of alternative matching and address standardization methods. .

Likewise, there could be innocent explanations for home-based businesses that claimed to have five or more employees. Maybe some of these companies were just using a home address to receive mail, for example. Or maybe they were indeed houses with a lot of workers.

“Generally, we believe a wide-open federal stimulus package was needed during the pandemic to offset business closures and layoffs,” Kasprzak commented. “But an offer of essentially free money attracts fraud.” PPP debts were forgiven if the company used the money to support employment.

The study also showed major differences between lenders in the number of business customers whose businesses could not be confirmed.

Bank of America was the largest lender in the study, having originated 383,019 PPP loans. Among them, 11.3% could not be confirmed by name and address. On the other hand, a Florida Financial company, a self-proclaimed “hard money” lender, made 4,320 loans, 43.4% of them to borrowers whose existence could not be confirmed in SMR’s study.

SMR Research Corp., based in Hackettstown, New Jersey, is a real estate and business data compiler. SMR was founded in 1984.

Contact SMR: Stuart Feldstein at 908-852-7677, or [email protected]

300 Valentine Street Hackettstown, New Jersey 07840.


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SOURCE SMR Research Corporation

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