PPP Forgiveness: Responding to an SBA Audit, Best Practices for Mitigating Enforcement Risk

Description

The CARES Act and subsequent legislation made three rounds of PPP financing available to small businesses. Those loans have been funded and many loan forgiveness applications submitted, but loans where forgiveness has been awarded remain subject to SBA audit. Borrowers are potentially subject to fraud claims and reimposition of the obligation to repay the loan. They and their counsel must prepare to respond to SBA audits.

In evaluating a borrower's loan forgiveness application, the SBA will consider several factors, including whether a borrower was eligible for a PPP loan, whether the borrower used the proceeds for the purposes enumerated with the CARES Act regulations, and whether the subject borrower calculated its expected loan forgiveness amount properly.

The SBA recently dropped its position on mandatory audits of loans over $2M and the completion of the Loan Necessity Questionnaire, but it has reserved the right to audit PPP loans of any size. Certain exemptions are available, but the exemption must be carefully documented.

SBA audit requests can be extensive. The borrower must be prepared to provide documentation supporting its eligibility for the PPP loan, confirming the accuracy of its loan forgiveness application, and otherwise demonstrating the borrower's compliance with PPP requirements. Good documentation retention protocols are essential.

Listen as our authoritative panel discusses the PPP audit process and how to best prepare for and respond to an SBA audit of a PPP loan.