The Potential Impact of PPP Loan Audits on Business Borrowers

The recipients of Payment Protection Program (PPP) Loans are growing increasingly concerned about potential audits following an estimate by the Small Business Association’s (SBA) Office of Inspector General that up to one-third of PPP Loans may have signs of potential fraud.

The SBA has the authority to audit the compliance of all PPP Loan borrowers to ensure they met eligibility requirements and used the funds in accordance with the CARES Act. This involves investigating whether businesses accurately calculated their loan eligibility and if the funds were used appropriately.

During the COVID-19 pandemic, over 11.5 million PPP Loans were granted to struggling small businesses, with some loans reaching up to $10 million. Businesses that used at least 60% of their loan to cover payroll expenses within the specified timeframe are eligible for loan forgiveness.

For businesses not eligible for forgiveness, PPP Loans are now becoming due. The SBA has started referring delinquent loans to the Treasury Department for collection, with approximately $20 billion in delinquent loans under $100,000 already submitted.

If the SBA decides to conduct an audit, lenders will notify borrowers within five business days. To avoid delays in the audit process, JD Supra recommends that borrowers work with their attorneys to compile the necessary documentation.

As concerns about potential audits rise, PPP Loan recipients are urged to ensure they followed all guidelines and used the funds appropriately to avoid any potential legal consequences.