If you received a Paycheck Protection Program (PPP) loan from the SBA, will you be audited? 

How does the SBA decide who to audit, and what are the consequences if the SBA decides that you were not eligible for a PPP loan, not eligible for loan forgiveness, or that there were misrepresentations in your loan or your loan forgiveness application? 

Below, we will look at the SBA’s guidance as to who will be audited, how the SBA will determine compliance with your business’s certifications, and what the SBA’s response may be if they find that you did not qualify. 

We will also discuss how you can avoid a civil audit or criminal investigation based on your PPP loan or loan forgiveness applications. 

Paycheck Protection Program (PPP) Loans – Will I Be Audited? 

The SBA is relying on the certifications made in the loan application (and the lender’s approval of those certifications) when authorizing Paycheck Protection Program (PPP) loans to small businesses. 

Before the loan is forgiven, however, you may be subject to a civil audit that could result in your loan not being forgiven, or, in some cases, a referral for a criminal investigation. But who gets audited? 

How Will the SBA Decide Who to Audit for Paycheck Protection Program Loans? 

In their Paycheck Protection Program FAQ section, the SBA says that they will review all loans in excess of $2 million:

39. Question: Will SBA review individual PPP loan files?

Answer: Yes. In FAQ #31, SBA reminded all borrowers of an important certification required to obtain a PPP loan. To further ensure PPP loans are limited to eligible borrowers in need, 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.

So, they will review all loans in excess of $2 million, in addition to other loans as appropriate. How will they decide which other loans to audit? 

The “Safe Harbor” Provision and PPP Loans Less than $2 Million

Any borrower can be audited, but you are more likely to be audited if your loan was greater than $2 million, if your company is public, or if there is inaccurate information in your loan application, your loan forgiveness application, or the documentation that you provided to your lender. 

One of the certifications that is required before you can obtain a PPP loan is that the loan is necessary to support your ongoing operations. That’s a vague, ambiguous statement that has caused concern for many businesses – how will the SBA review that for compliance? 

In the SBA’s FAQ section, they say that, if your business’s loan was less than $2 million, they will presume that your certification was made in good faith:

46. Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?

Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates,20received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.

SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.

In the answer to the above question, the SBA also reiterates that they focus their reviews on larger loans, to ” conserve its finite audit resources” and “where the compliance effort may yield higher returns.” 

What if I Received a PPP Loan and the SBA Decides I Did Not Qualify? 

If you are audited and the SBA decides you did not qualify for a PPP loan, they say that they will require repayment of the loan. In the answer to FAQ 46, the SBA also says that, if you repay the loan, they “will not pursue administrative enforcement or referrals to other agencies based on its determination:”

If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request.

The implication is that, if the loan is not repaid, the SBA will refer your case to an appropriate agency for civil or criminal enforcement. 

Paycheck Protection Program (PPP) Loans – Criminal Investigations

It appears that the SBA will not refer cases for criminal investigation based on the good faith certification regarding the necessity of the loan request, but they are referring cases for criminal investigation and prosecution. 

If the SBA conducts a civil audit and decides that you did not qualify for the loan, you can just repay it. If the SBA thinks that you or your business engaged in fraud to get the PPP loan, however, that may be a different story. 

For example, the DOJ has charged six people “with fraudulently obtaining approximately $1.5 million in Paycheck Protection Program (PPP) loans on behalf of five businesses based in Georgia and South Carolina.” Another seven people were charged in Columbia, SC with “laundering over $750,000 of fraudulently obtained funds, including over $390,000 from a Paycheck Protection Program (PPP) loan.” 

You are likely to be referred for a criminal investigation if you knowingly provide false information to the SBA or to your lender like:

  • Claiming funds for a business that doesn’t exist,
  • Attempting to claim funds for a business that does not belong to you,
  • Making misrepresentations in your loan or forgiveness application or the supporting documentation, or
  • Making misrepresentations about whether the loan proceeds were used for authorized expenditures. 

How do you avoid a civil audit or criminal referral? 

If you borrowed more than $2 million, you are likely to be audited. Whether your loan was less than or more than $2 million, you should ensure that your loan application, your loan forgiveness application, and your supporting documentation are accurate before you submit them and that you do not make unintentional misrepresentations to the SBA. 

Business Law Attorneys in Myrtle Beach, SC

Your Myrtle Beach business law attorney at Coastal Law can help you to review your PPP loan applications and documentation to ensure that you are in compliance. We can also help you to respond to a civil audit by the SBA or a criminal investigation resulting from your PPP loan or loan forgiveness application. 

We also help our clients to set up new businesses and manage existing businesses, including choosing and filing the right type of business entity, drafting and reviewing contracts, prosecuting and defending lawsuits, and, most importantly, helping our clients to avoid litigation whenever possible. 

Call Coastal Law now at (843) 488-5000 or contact us through our website for a free consultation about how to protect your business and your assets. 

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