You have spent your PPP funds, now what?

The Paycheck Protection Program (PPP), provides loans and loan forgiveness based on borrower’s certifications and documentation provided by the borrower. The SBA has announced that it will begin auditing these applications once the filing of the forgiveness request is made. Due to the many and ongoing changes in guidance and rules, we recommend early filing for forgiveness, as the rules then in effect will govern the application. For example, the SBA just issued a procedural notice to those businesses/not for profits who are thinking of selling or merging their businesses, who will now need to notify their PPP lender of the contemplated transaction and provide the PPP Lender with a copy of the proposed agreements. So what should a business or non-profit expect, and what will be considered? 

Although the SBA has said it is reviewing all loans in excess of $2 million, the SBA may audit any applicant for loans in any amount. If SBA does decide to audit a given PPP loan, the borrower/recipient will be notified by the lender or the SBA by mail.  

The borrower/recipient must retain PPP documentation for six years after the date the loan is forgiven or repaid in full, and the following factors will be examined:(1) whether a borrower was originally eligible for a PPP loan, i.e., that economic uncertainty made the loan request necessary to support the ongoing operations of the Applicant, and any borrower/recipient with a loan greater than $2 million will need to be ready to establish that they qualified based on their individual circumstances, (2) whether a borrower calculated the loan amount correctly, (3) that the borrower used the proceeds for the central purpose of keeping workers paid and employed, and that proceeds have been spent on allowable uses: payroll costs, interest on mortgages, rent, utilities, and interest on any other debt obligations incurred before February 15, 2020.

The SBA may request additional information and will consider all information provided by the borrower in response to such an inquiry. If a borrower fails to respond to such a request for information, the SBA may determine the borrower was ineligible for the loan, or for forgiveness in whole or in part. As such, it is crucial your business responds promptly and thoroughly to any and all requests.

If an adverse finding is made by the SBA, the borrower/recipient has 30 days to prepare and file an appeal. The appeal will be heard by the SBA Office of Hearings and Appeals (OHA) after (1) the appellant’s receipt of the final SBA loan review decision, or (2) notification by the lender of the final SBA loan review decision, whichever is earlier. Note an appeal by a borrower of the SBA’s decision does not extend the deferral period of the PPP loan.

The SBA has only just begun the review process, and any application filed now will likely take months to be reviewed. It is prudent to be sure to update your lender on any address/personnel changes to be sure that you receive any notifications.  

We represent PPP recipients in understanding the SBA requirements, completing the forgiveness application, and preparing and defending the audit. Should your company require assistance, please contact us.