The SBA Just Pointed Military-Grade AI at Small Business Loans

We thought COVID fraud was over, and while we still reminisced about it.

the current administration is not letting COVID fraud slip away or fall through the cracks. This week we learned that the SBA is spending money on Palantir to prove that COVID Fraud is worth the chase. This is the state of where we are. The SBA is now using military-grade tools to suss out fraudulent small business loans that are sometimes half a decade old.

So far it seems to be working. According to the SBA’s report, 560,000+ suspected fraudulent borrowers, $22B, were referred to the Treasury — the largest referral in the agency’s history. At my data startup, I see 300K SBA loans / $195B every day and how that impacts business credit decisions in real-time. It’s fascinating to see the numbers and realize that this start from Palantir is only scratching the surface.

This is only the beginning of a new approach to how the government will catch the bad guys. It’s not a one-time sweep. The SBA and other government agencies that deal with money will continue to apply these approaches to find the fraud. The irony is that the same AI tools being leveraged by companies like Palantir are being leveraged by fraud rings to access capital and prey on small businesses, the finance community, and more. This is an institutional arms race that will only gain steam with each new model that is released by companies like OpenAI, Anthropic, and the now fast-growing open-source model companies across the globe.

One of the things that I hear and learn a lot from this is how it impacts the bottom line of lenders. Particularly the SBA lender market, which we serve at ModernTax. These new policies and initiatives have taken their toll, with SBA origination volume down on the year and defaults rising, with SBA 7(a) defaults hitting 4.8% in March 2026 — the highest since 2013. There is more scrutiny, more risk, and challenges to “get loans” approved.

One of the other factors that impacts me and I think the wider industry is how the government will buy solutions to their problems. The state is renting their enforcement brain, and this will only continue. It’s why companies like Anduril are valued so highly. The government was supposed to get smaller, but for that to happen, they have to buy products from Palantir to find the fraud and justify that they are “saving” dollars. This leads to the question of what the job of an agency like the SBA is– on one hand, it is raising lending amounts with the combined 7(a)+504 cumulative cap doubling from $5M to $10M, but on the other hand, they are after the COVID-era fraud that took place under the last administration.

Bringing this together, what matters for the lender and the small business owner in 2026. It comes down to process, tools, and instinct. The SBA lender’s process has become more arduous, but AI is helping that – not from a compliance standpoint yet, but in the pre-flight stage; there is so much information that can be gathered before you take a real look at a borrower’s financial situation. Clearfirm is helping there with tools like our API Trace product and our financial endpoints reports. From the instinct side, it still takes subject matter expertise and humans that know the industry. That is one of the great things about the industry: there are over 20,000 experts with decades of experience. The tools and the processes may change, but the relationships matter, and that is likely even more of the case now.

I am always looking to learn more about convergence, business lending, credit, and more.