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Kevin O'Flaherty

In this article, we discuss what PPP loan borrowers should be aware of when filing for forgiveness and answer the following questions:

  • What were the PPP loans originally intended for?
  • What information must a PPP borrower provide if audited?
  • What happens if a PPP borrower is found ineligible or fails to respond?

What Were The PPP Loans Originally Intended For?

The Paycheck Protection Program (PPP), was a business loan program established under the CARES Act, to help mostly small businesses, self-employed workers, non-profit organizations, and tribal businesses continue operating and paying certain expenses. Businesses could apply for a low-interest loan equal to roughly 2.5 times their average monthly payroll.

Recently, the SBA announced that audits will begin on applications after receiving the filing for forgiveness. Those familiar with the PPP program will remember that one of the stipulations included the possibility of the loan being partially or completely forgiven if the applicant kept its employee count and employee wages stable and used the funds for costs such as payroll, rent, utilities, and interest.

The SBA has stated that it intends to audit all loans over $2 million but that it has the authority to audit any PPP loan at any amount. Furthermore, the SBA has the power to change certain procedures and stipulations surrounding PPP loans, as long as those changes are reasonable and for the greater good of the program. Once such change requires any businesses or not-for-profit that received a PPP loan to notify their PPP lender of a potential merger or sale of their business, including a copy of the proposed agreement.

Borrow audit what to provide

What Information Must A PPP Borrower Provide If Audited?

Because of the large volume of PPP applicants and the number of loans given out, businesses applying for forgiveness now probably won’t be audited for months or even years. The stipulations attached to a forgiveness application will depend on the date the application is filed. Thus, discussions on what is the right move—applying for forgiveness now or waiting till later—will permeate blogs and message boards across the web.

What any PPP recipient should know when considering filing for forgiveness is that PPP documentation must be retained for six years after the date the loan is forgiven or repaid in full. Furthermore, under an audit, the following factors will be examined :

  • Did the borrower meet the economic criteria required to be eligible for a PPP loan? There are many examples of individuals who clearly abused the PPP system, and some of them have already received punishment under the law, but there will likely be many more cases where a borrower’s original eligibility for a loan was ambiguous.
  • Did the borrower correctly calculate the loan amount when applying? 
  • Has the borrower used the loan for the correct purpose, such as keeping employees paid, and secondary allowable uses, such as interest on mortgages, rent, utilities, etc?

What Happens If A PPP Borrower Is Found Ineligible Or Fails To Respond?

PPP recipients should be aware that the SBA can request additional information in order to determine eligibility for forgiveness and whether the business was originally eligible for the PPP loan. If the PPP applicant has documents that support its case for the original loan and/or forgiveness, the applicant should keep those documents for at least six years.

If the borrower fails to respond to a request for documents or fails to provide adequate documentation, the SBA will likely determine the borrower was ineligible for the original loan or for forgiveness of the loan. As such, it is crucial for businesses to be on the lookout for notifications through the mail or from their PPP lender.

If the SBA delivers an adverse finding, whether it be the borrower wasn’t originally eligible, isn’t eligible for full forgiveness, or isn’t eligible for partial forgiveness, the applicant has 30 days to file an appeal. This review and appeal process does not extend the deferral period of the PPP loan. PPP loan borrowers must be vigilant in updating their lenders about any address or personnel changes to ensure timely delivery of notifications.

Disclaimer: The information provided on this blog is intended for general informational purposes only and should not be construed as legal advice on any subject matter. This information is not intended to create, and receipt or viewing does not constitute an attorney-client relationship. Each individual's legal needs are unique, and these materials may not be applicable to your legal situation. Always seek the advice of a competent attorney with any questions you may have regarding a legal issue. Do not disregard professional legal advice or delay in seeking it because of something you have read on this blog.


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