SBA Releases List of PPP Borrowers - Which Businesses Are Now Audit Targets?

The SBA and the United States Treasury have now released a list of over 600,000 PPP loan borrowers who received PPP loans of $150,000 or more.  This list includes the name of the borrowers, the general loan range of the PPP loans received, the state in which the borrower is located, and other information.

The list released by SBA/Treasury contains expected information about borrowers in many industries, including restaurants, construction, and other industries hard-hit by the COVID-19 pandemic, and certainly in need of financial help to get through the economic uncertainly and hardship caused by the pandemic. The list also expectedly identifies higher numbers of borrowers from states with higher populations, but also smaller and less populous states whose borrowers appear to have received disproportionately larger numbers of PPP loans (both in terms of the number of loans and loan amount).

One of the more interesting facets of this PPP borrower information is the significant number of sales and marketing businesses, investment advisors, professional service providers, and others in the service industry that received PPP loans. This is representative of the “service economy” that America has become.

Every PPP loan borrower must make certifications in its PPP loan application that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant,” the PPP loan proceeds “will be used only for business-related purposes as specified in the loan application and consistent with the Paycheck Protection Program,” and that the borrower is otherwise eligible for a PPP loan. Some of the PPP loan certification and other requirements are carried over and incorporated in the promissory note/loan agreement signed by the borrower with the bank that issued the PPP loan.

The SBA has also issued interim regulatory guidance that all borrowers must assess their individual economic need for a PPP loan under the requirements of the CARES Act and the PPP regulations at the time of the loan application, and that borrowers “must certify in good faith that their PPP loan request is necessary.” Specifically, SBA cautions that, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.

The SBA has also announced that all PPP loans over $2 million will automatically be audited.  Many PPP borrowers with loans below $2 million will also certainly be audited, and, it goes without saying, that if a borrower also applies for forgiveness, the likelihood of audit increases.

The SBA did announce a “safe harbor” for PPP borrowers receiving less than $2 million, and where the borrower “will be deemed to have made the required certification concerning the necessity of the loan request in good faith”.  PPP borrowers who receive over $2 million do not receive the benefit of this “safe harbor” and must prove they are entitled to the loan.

The SBA offered many PPP loan borrowers the ability to return PPP loans that were received, but not many took the SBA up on this offer (except for larger and publicly-traded businesses that were vilified in the public eye by the government and the media).  There are many service firms in the list released by the SBA and Treasury, and who also did not return their PPP loans.

The SBA and Treasury have identified publicly-traded and larger businesses as ripe audit targets for their PPP loans.  Investment firms and other businesses with access to capital, loans, and other sources of funding are also on the radar.  It may be expected now that many professional service firms could be next on the “audit list”, and particularly those that have done well – before and during the pandemic.    SBA PPP audits, and also criminal investigations have already begun.

Burr & Forman has a dedicated team to counsel individuals and businesses in government audits, investigations and defense related to the Paycheck Protection Program (PPP) and Coronavirus Aid, Relief and Economic Security (CARES) Act. The PPP and CARES Act Audit, Investigations and Defense Team represents and advises clients in audits and investigations involving PPP loans and tax benefits that may have been claimed under the CARES Act.  This multidisciplinary team combines more than 230 years of legal experience and attorneys with previous government positions, including attorneys with IRS Chief Counsel, the United States Department of Justice, and United States Attorneys’ Offices.

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