Government Announces Increased Scrutiny for Companies Receiving over $2 Million in PPP Loans
Since the Paycheck Protection Program (PPP) exhausted its allocation of funds in mid-April, controversy surfaced around the 220+ well-known large and publicly traded companies which received hundreds of millions of dollars in forgivable PPP loans despite their access to capital and liquidity.
This week, Treasury Secretary Minuchin announced every company taking a PPP loan over $2 million will receive an audit by the SBA before the loan is forgiven. In the event a company fails the audit, it will not receive loan forgiveness and could face civil and/or criminal charges for making false certifications.
Before a PPP application could be submitted by the borrower, every loan required a certification in good faith that the funds were necessary. Many companies apparently certified the funds were necessary although they had access to other funds.
The SBA is now offering a safe-harbor for those who received unnecessary PPP loans. Any borrower repaying their entire PPP loan before May 7, 2020 will be deemed to have made the certification in good faith. Read the SBA’s final interim rule for more details.
The PPP was implemented so small businesses could meet their payroll expenses for 2.5 months and avoid laying off their employees. While some companies have been shamed into returning unnecessary funds, others have refused and claimed their PPP loan was necessary.
Given the government’s audit announcement, companies with PPP loans in excess of $2 million should develop thorough documentation to substantiate the loaned funds were necessary and how they were spent. Failure to do so will require the PPP funds be repaid, plus interest; more serious consequences are possible.
The more PPP funds which are repaid by companies that didn’t need them, the better chance real small businesses can get the funding they need to survive.
Wondering if you should return PPP funds?
Curious how to develop documentation so your PPP loan principle and interest can be forgiven?
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