PPP Loans: Overview of Prior Guidance
PPP Loans: Overview of Prior Guidance
The Paycheck Protection Program (“PPP”) began with rushed legislation and a race for financial support in the middle of a pandemic. This race was hardly a straight line as the Small Business Administration (“SBA”) and the U.S. Department of the Treasury scrambled to build the program in flight, issuing a series of evolving FAQs and guidance. Banks then tried to internalize that guidance and build systems that could withstand the onslaught of applications. After many months and multiple waves of funding, businesses completed their initial applications, banks completed their eligibility determinations, and thousands of loans were successfully issued. With the initial scramble behind us, SBA and Treasury guidance became more concrete just in time for thousands of forgiveness applications.
Although the seeming chaos of the initial application process is over and PPP funding has been fully expended, the true test for the applications submitted since April 2020 is yet to come. Borrowers are now entering into a new phase consisting of forgiveness appeals, audits, fraud reviews, and enforcement. Given the distinct possibility for calm 20/20 hindsight and the shaky ground of guidance developed by agencies under extreme pressure, this phase may be the most difficult yet.
In short, not every conclusion made in the rush for PPP funds was correct, and not every borrower truly understood the nuances of the small business rules as they raced against the clock for funding. The confluence of speed, dynamic guidance, and challenging rules will lead to forgiveness denials and hard conversations with banks and regulators.
Anticipating a rush of forgiveness denials, the SBA recently unveiled its new procedures for appeals of unfavorable forgiveness decisions. The SBA has also been auditing larger and/or suspicious loans, making clear that this review can proceed even after a forgiveness determination has been made. This means that even firms that received forgiveness are not necessarily in the clear. Simultaneously, the U.S. Department of Justice (“DOJ”) has been busy prosecuting PPP loan fraud.
Companies that are disappointed by the SBA’s forgiveness determinations, that have received pointed questions during an audit, or that find themselves embroiled in an enforcement action should review our prior advice with respect to the details of the PPP Loan Program. Below, we’ve included the highlights:
In short, we are not yet at the halfway point of the PPP story. Now is the time that regulators and enforcement agencies can, in the calm after the PPP storm, second guess, quibble, and challenge PPP borrowers. Given the nuances in this area and the many ways to get forgiveness right (or wrong), companies of all sizes would be wise to seek counsel when the questions start and not delay until they are the subject of an enforcement action.