Paycheck Protection Program Loans and Audits

If you own a small business and received a Payment Protection Program loan, you’re probably asking yourself whether you’ll be audited or need to repay the loan.

As it stands, there’s no easy answer.

The Payment Protection Program (PPP), which launched in the spring, offers loans to small business owners to help them keep employees on the payroll during shutdowns related to novel coronavirus.

The government announced in April that any business that receives more than $2 million as a loan would be audited. However, if a business received less than $2 million, auditing may only happen before receiving loan forgiveness.

Little is known right now as to how exactly PPP loan audits will work. Currently, there are no set timelines or further information on these audits, but more information is expected to become available in the coming weeks.

The auditing process will ensure that the certifications you made when applying for the PPP were accurate and made in good faith. In the forgiveness process, an auditor will attempt to confirm that the claimed expenses were indeed made by examining your payroll records and expense documentation.

In essence, the auditor will be looking for proof that your application was accurate and truthful. Your business / PPP loan could be audited at any point in the loan process: during the application, after getting approved, while applying for forgiveness, or after the loan is fully paid off or forgiven.

You must retain your supporting documents for six years after the loan is fully forgiven or fully repaid. Digital backup copies are always a good idea.

New Payroll Protection Program Flexibility Act

Meanwhile, the PPP Flexibility Act was signed into law on June 5, providing relief from some PPP restrictions. Under the PPPFA, the timeline of availability for PPP loans will be lengthened, more flexibility will be provided for loan forgiveness, and the borrowers will be able to defer payroll taxes for employees whose payroll costs are covered by the loan. In addition, loan maturities and repayment timing can be extended.

The new law:

  • Allows businesses to spend up to 40% of PPP funds on certain non-payroll expenses and still qualify for full forgiveness. (The business must still meet other requirements related to keeping workers on payroll.)
  • Gives businesses up to 24 weeks (instead of 8 weeks) to spend PPP funds and still qualify for full forgiveness.
  • Removes the restriction that businesses who get PPP can’t also get the Payroll Tax deferral.
  • Extends the time to rehire employees and avoid a reduction in forgiveness from June 30, 2020 to December 31, 2020.
  • Provides more flexibility for businesses by allowing them to potentially avoid a reduction in forgiveness if they can’t return to the same level of business due to “the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.”

The U.S. Small Business Administration, in consultation with the Department of the Treasury, last week also posted a revised, borrower-friendly Paycheck Protection Program (PPP) loan forgiveness application implementing the PPP Flexibility Act of 2020. In addition to revising the full forgiveness application, SBA also published a new EZ version of the forgiveness application that applies to borrowers that:

  • Are self-employed and have no employees; OR
  • Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
  • Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.

Learn how Sekure can help your business. Visit our COVID-19 Merchant Resources page to help you stay open and #Staysekure.