Look Out! COVID-19 and Paycheck Protection Program Scams

November 5, 2020

Paycheck Protection Program scams are a new frustration amid the COVID-19 pandemic. Here is how you can protect yourself.

Image of a scammer reaching out of a computer to grab money and account information.

Scams of some sort seem to be all the rage this year.  So, if you do an internet search about COVID-19 scams, you’ll have to sift through a bunch of articles claiming the virus is a scam or a hoax.  Well, that’s not what this is about at all.  In fact, the virus is clearly alive and well, and so are scammers intent on taking advantage of unsuspecting citizens.  Additionally, in the business world, we are seeing a new kind of threat: Paycheck Protection Program scams.

So, in order to avoid falling victim to these faceless predators, you need to arm yourself with a shield of information.  Read on to find out what you can do to avoid becoming this year’s prey.

The Paycheck Protection Program

When the pandemic brought our country to its knees last winter, the Federal Government reacted by implementing the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act.  Under the CARES Act, the Paycheck Protection Program (PPP) assists small businesses by giving them an opportunity to receive a small business disaster loan.  Employers can use the loan to cover various business expenses, including rent and payroll.  Furthermore, employers also have a possibility of having their loans forgiven, depending on whether they meet certain criteria.

Now, scammers have a heyday with anything that makes large sums of money available to people.  They realize that people are hopeful of two things at the moment.  First, they are hopeful for some kind of economic relief, if they haven’t already received it.  Second, they are hopeful that their small business loans under the PPP will be forgiven.  Realizing this, scammers are zeroing in on those two hopes, and trying to lure victims with promises of one or the other.

3 Obvious Scams

So, what are some specific things you should be looking out for?  Well, applicants for small business disaster loans during the COVID-19 pandemic will apply through a lending partner of the SBA.  Lending partners are either banks, community development organizations, or micro-lending institutions.  So, if you reached out to a lending partner, you can expect they will contact you at some point to proceed with the loan application or to manage your account.  However, there are really three red flags you should look out for, which will tip you off that you are the target of a COVID-19 scam.

Related:  Finding the Needle in The Haystack: Zeroing In on Small Business SEO

Contact from the SBA

The first way scammers are taking advantage of people is by calling and claiming to be from the Small Business Administration.  Well, once they have your ear and attention, they say something to the effect of needing to verify your account. So, they ask for confidential information, such as an account number, birthdate, or social security number.  Once they have sufficient information, they use the data to access bank account information to steal funds.

Now, the thing to understand about this is that the Small Business Association should not be reaching out to you about anything related to the disaster loan you received through the lending partner.  So, if you get a call, email, text, or letter from the SBA regarding a disaster loan or grant, it is likely a scam.

Requesting Payment

The second way scammers are taking advantage of people is by calling or sending an email asking for an upfront payment in order to be approved for a loan.  They will try to convince targets that they are in the final steps of the process, and the only thing standing in between the applicant and the loan is a down payment or deposit. 

Please be aware—you should not need to provide any upfront payment in order to secure a disaster loan or grant.  In fact, that is counter-intuitive to the reason you would need a disaster loan.  People use these loans because they desperately need the money to keep their business afloat.

High Fees

Image of a tablet with words on a table by a pen, calculator, and classes, and the words "interest rate" in bold.
Photo by Nick Youngson | Source | CC by

The third scam is through inflated rates or fees on loans.  Knowing people in need of disaster loans are in a pinch, scammers prey on those who don’t look at the fine print and the terms of the loan including the fees and rates.  Scammers are offering loans with heavy repayment terms, which should be a tip that something is fishy.

Now, if you are able to get a small business loan under the PPP, you will go through a lending partner of the SBA.  Brokers of lending partners can charge fees at various rates.  However, there are guidelines.  For example, loans under $50,000 are capped at 3%, while loans of $50,000-$1,000,000 are capped at 2%.

Ways to Protect Yourself

The best way to protect yourself is to proactively arm yourself with information, instead of reacting after becoming a victim.  Know this:

  • The SBA will not initiate contact with you about your Paycheck Protection Program loan.  So, if you did not contact them, they should not be contacting you.
  • You do not need to pay an upfront fee in order to receive a small business disaster loan.  So, never open your checkbook to someone requesting payment for a loan in this situation.
  • Lending partners are limited in the fees they can assess based on the size of the disaster loan.  So, pay attention to the rate lenders give you for your disaster loan.
Related:  Saving Grace: Families First Coronavirus Response Act

Furthermore, if you do get a call from someone claiming to be the SBA, ask for their name, badge number, and phone number.  Hang up and call 1-833-572-0502 to see if the call was legitimate.  You may also reach the SBA at

Look Out for COVID-19 and Paycheck Protection Program Scams!

Oh, yes, scamming is alive and well.  Interestingly, even as I was writing this, I became the target of a an attempted COVID-19 scam, in which the scammer touted a “new government grant giving away up to $90,000.”  Luckily, my radar was already up for scammers, and I did not disclose any sensitive information.  Not everyone is so fortunate, however, and they may realize too late they are the victim of a scam.  Unfortunately, there are people in this world with bad intentions, and they are hunting those who are easily convinced.  So, keep your eyes open and look out for COVID-19 and Paycheck Protection Program scams as you go about your business during the pandemic.

Image of a gladiator armed with a shield and spear, to protect against COVID-19 scams.

Subscribe to our newsletter

Get the latest from the world of payroll & HR delivered straight to your inbox!