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  • Writer's pictureJim Nardello CPA

IMPORTANT: PPP LOAN UPDATE

Recent updates have shown that the SBA will be auditing recipients of the PPP Loan to verify the need of the funds. Those who received funds and were not in need could potentially be at risk of criminal liability of fraud. The way it sounds, anyone who took $2 million or more in funds WILL BE audited, and anyone who took less than $2 million in funds COULD BE audited. If you were not in need of the funds, you have the ability to return it in good faith by May 7th to avoid all consequences. For more details please see the attached article below posted by CLA on May 1, 2020.


"If you received, applied for, or are considering applying for a Paycheck Protection Program (PPP) loan, you may have some concerns about recent news. Specifically you may be concerned about PPP eligibility, forgiveness, and government scrutiny. We want to help you stay updated on these PPP developments and provide a couple suggestions.

As background, the PPP loan application includes two critical certifications that the authorized representative of the loan applicant must make. Specifically, the representative of the applicant is required to certify that:

  • “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

  • “The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud.”

PPP Loan Application, p. 2 (emphasis added). As the language quoted in the second bullet point above indicates, the risk of making an inaccurate certification includes potential criminal liability for fraud.

As PPP funding ran short and public opinion shifted, there have been important new developments:

  • On April 23, Treasury issued FAQ #31, which states, in relevant part: “All borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. … Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’ Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” FAQ 31 further states, “Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.”

  • On April 28, Treasury Secretary Mnuchin announced the SBA “will review all loans in excess of $2 million, in addition to other loans as appropriate.”

  • On April 28, Treasury issued FAQ #37, which makes it clear that the above-quoted statements in FAQ #31 apply to all businesses.

We know this is an important issue and many of our clients are looking for guidance and reassurance.

Unfortunately, nowhere does the current guidance contain the level of detail necessary to address these issues with any degree of certainty. This is incredibly frustrating, as borrowers hear threats of SBA audits, fraud charges, and bad publicity, but they lack clear rules to guide decisions.

So what should your organization do? While there is much uncertainty around how these requirements will be enforced, we know one critical piece for all borrowers is documentation of your rationale for the loan application certifications. The newly issued guidance indicates the authorized representative of the borrower should be able to assert, in good faith, that the PPP loan was needed after considering at least these factors: (1) the borrower’s current activity; (2) the borrower’s access to other sources of liquidity sufficient to support its ongoing operations; and (3) an evaluation of whether these other options, if any, could be implemented in a way that was not significantly detrimental to the borrower’s business. If you are audited by SBA, it will likely be very important to establish that you considered each of those factors in good faith. Beyond that, if you have concerns about the loan application certifications and your eligibility to receive a PPP loan, you may want to involve an attorney who can help you evaluate your options and the corresponding legal implications.

Don’t delay taking action, as the May 7, 2020 date to make a decision as to whether to keep or return the funds will be here before you know it."

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