PPP Loan Audits: What to Expect and How to Appeal | Nexsen Pruet, SARL
The Paycheck Protection Program (PPP), as established by the CARES Act and subsequent guidelines found in the PPP Interim Final Rules, grants loans and loan forgiveness based on the borrower’s certifications and documentation provided. by the borrower. Given the politically sensitive nature of the program, including a healthy dose of public scrutiny and heavy reliance on information provided by the borrower, the SBA has announced that it will conduct a loan audit. This Customer Alert provides a brief overview of what a business should expect if their loan is audited, including what will be considered and how to appeal an SBA decision. Note that PPP settings are constantly evolving, including the auditing process, and the information in this document is subject to change.
Who will be audited and when can an audit be expected?
The SBA has decided, in consultation with the Treasury Department, that it will review all loans over $ 2 million after the lender submits the borrower’s loan forgiveness request. That being said, the SBA has reserved the right to also audit loans of any amount at any time, and will likely “verify” loans of lesser amounts. If the SBA decides to audit a loan, the SBA will notify the lender in writing, and the lender will then notify the borrower in writing within five business days of the correspondence from the SBA.
Note that the borrower must keep the PPP documentation on file for six years after the date the loan is canceled or paid off in full, and the borrower must allow authorized representatives of the SBA, including representatives from his office of the Inspector General, to access these files on request. .
What will likely be taken into account?
According to a provisional final rule issued by the SBA, the following factors will be taken into account:
Eligibility: The SBA administrator will consider whether a borrower was eligible for a PPP loan under the CARES Act and the SBA rules / guidance available at the time of the borrower’s application. Note the following from the SBA Faq:
“When submitting a PPP application, all borrowers must certify in good faith that”[c]The current economic uncertainty makes this loan application necessary to support the applicant’s ongoing operations. The SBA, in consultation with the Treasury Department, has determined that the following safe harbor will apply to the SBA’s review of PPP loans regarding this matter: Any borrower who, along with its affiliates, has received PPP loans with an initial principal amount of less than $ 2 million will be deemed to have made the required certification in good faith regarding the necessity of the loan application.
It is important to note that borrowers with loans greater than $ 2 million who do not meet this Safe Harbor may still have an adequate basis for performing the required good faith certification, depending on their individual circumstances. light of the language of certification and SBA guidelines.
Amount of the loan: The SBA administrator can check whether a borrower has calculated the loan amount correctly.
Product use: The SBA administrator will analyze whether the borrower used the proceeds for the purposes listed by Congress and in accordance with the CARES Act’s central purpose of keeping workers paid and employed. Proceeds must have been spent for authorized uses specified under the CARES Act: personnel costs, interest on mortgages, rent, utilities and interest on any other debt incurred before February 15, 2020.
Calculation of loan forgiveness: The SBA administrator will analyze whether the affected borrower correctly calculated the amount of loan forgiveness provided on their application (SBA 3508 form or equivalent form from a lender).
Can a borrower respond to an audit?
Yes. The SBA may require the lender to contact the borrower in writing to request additional information, or the SBA may request the information directly from the borrower. The SBA said it would review all information provided by the borrower in response to such a request. If a borrower does not respond to such a request for information, the SBA may determine that the borrower was not eligible for the loan, or for a full or partial discount. As such, it is crucial that your business responds quickly and thoroughly to all requests.
Is there an appeal process?
Yes. According to a recent provisional final rule issued by the SBA, the appeal will be heard by the SBA Office of Hearings and Appeals (OHA). The appeal must be filed within 30 calendar days of (1) the appellant’s receipt of the final SBA loan review decision, or (2) the lender’s notification of the final SBA loan review decision, whichever comes first. Note that an appeal by a borrower of the SBA’s decision does not extend the deferral period of the PPP loan.
The appeal request must contain the following information:
- The basis for the jurisdiction of the OHA, including, but not limited to, proof that the appeal is filed on time in accordance with § 134.1204;
- A copy of the SBA loan review decision being appealed, or a description of that decision if a copy is not available;
- A complete and specific statement as to why the SBA’s loan review decision is allegedly flawed, along with all factual information and legal arguments supporting the allegations;
- The relief requested;
- Signed copies of income tax returns actually reported to the Internal Revenue Service (IRS), and quarterly business and individual employee wage returns and Unemployment Insurance tax returns actually reported to the relevant state, for the relevant periods, if not provided with the PPP Loan Forgiveness Request (SBA 3508 form, SBA 3508EZ form or equivalent from the lender), or an explanation of why they are not relevant or available;
- Signed copies of the applicable federal income tax returns actually filed with the IRS with the appropriate schedules (for example, IRS Form 1040 with Schedule C / F) documenting the income of self-employed persons or partners in a partnership, if they are not provided with the PPP borrower application form (Form SBA 2483 or lender’s equivalent), or an explanation of why they are not relevant or available; and
- The name, address, telephone number, e-mail address and signature of the appellant or his lawyer.
The appellant must serve a copy of the motion to appeal with attachments on the following:
Associate General Counsel in Litigation
U.S. Small Business Administration
409 Third Street SW
Washington, DC 20416
Once the appeal is filed, an administrative judge or an administrative judge will be assigned to the appeal. The judge will consider the SBA’s administrative record, the appeal petition and the SBA’s response when making a decision. The judge will render a decision within 45 calendar days of the case being closed, to the extent possible, which will contain findings of fact and findings of law, the reasons for those findings and findings, and any remedies ordered. This decision will be served on each party. The judge’s decision is an initial decision, but unless a request for reconsideration is filed in accordance with § 134.228 (a) or a request for reconsideration is filed in accordance with paragraph (c) of § 134.1213, a decision initial will become the final decision of the SBA 30 calendar days after its delivery.