Important PPP update for 2021
On December 22, 2020, Congress passed a bill renewing funding under the CARES Act, including an additional $284 billion earmarked for America’s struggling small businesses. The new application deadline is May 31, 2021. The rules and application process for PPP loans and forgiveness have been modified, with more businesses eligible for PPP loans, more expenses forgivable, and a simplified application process. Also there is provision for “second draw” PPP loans for businesses that received PPP funding in 2020.
In this 2-minute read:
- Which businesses are likely to be audited after receiving PPP loans
- Statement from the Secretary of the Treasury
- You should provide and keep scrupulous records when applying for PPP loans and loan forgiveness
- If your loan is for less than $50,000 and you spend the money according to the rules, you are unlikely to be audited
Due to the huge crush of businesses asking for Paycheck Protection Program loans to help them through the COVID-19 crisis, many businesses considering or applying for PPP loans are wondering whether the government’s relaxing of some standards for qualification for these SBA loans will result in more stringent auditing by the federal government down the line.
There has not been definitive guidance on audits related to PPP loans. It is clear that the federal government is expecting borrowers to act in good faith when determining their eligibility, economic necessity, how they use their PPP funds, and how much forgiveness they request.
IMPORTANT UPDATE: On June 3, 2020, the Senate passed updates to PPP loan forgiveness requirements, extending the covered period to 24 weeks, and reducing the minimum loan funding that must be spent on payroll to 60%. Please read the details here.
NOTE: On Wednesday, May 13, 2020, the SBA released revisions to their FAQs regarding PPP loan forgiveness and which businesses are most likely to be audited. Read the details here.
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The government has eased or eliminated several restrictions typically associated with SBA loans in an effort to disburse these emergency funds quickly and efficiently. In exchange for loosened restrictions, the government is asking borrowers to act in good faith.
Treasury Secretary: all PPP loans over $2 million will be subject to a government audit prior to determining if they qualify for any loan forgiveness
Secretary of the Treasury Steve Mnuchin said on April 28, 2020 that all PPP loans over $2 million will be subject to a government audit prior to determining if they qualify for any loan forgiveness. We expect to see formal rules issued on this and other matters related to forgiveness.
Here’s the exact quote from Secretary Mnuchin:
We have noted the large number of companies that have appropriately reevaluated their need for PPP loans and promptly repaid loan funds in response to SBA guidance reminding all borrowers of an important certification required to obtain a PPP loan. To further ensure PPP loans are limited to eligible borrowers, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application. Regulatory guidance implementing this procedure will be forthcoming.
In general, it’s prudent to assume that the government may audit any business that receives a PPP loan. Therefore we strongly recommend that you keep good records about your eligibility, the economic circumstances you are facing, loan size calculations, uses of your loan funds, and any requests for forgiveness. If you have questions about any of these topics that aren’t answered by government FAQs and rules then you should contact your legal and/or accounting advisors.
Agents and Lenders have their own obligations but they are not responsible for borrower certifications or diligencing most aspects of a PPP application.
For loans less than $50,000, if you provide the necessary documentation for application, spend the money according to the rules, and either apply for forgiveness in a timely manner or pay back the loan within the time limit, it is unlikely that your business will be audited.
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