PPP Loan Forgiveness Application - Preparing for Lender Review and Potential Audit

Now is the time to begin preparing your PPP Loan Forgiveness Application (the “Application”) and ensuring that you have all of the requisite documentation. 

A prudent Borrower should take this time to prepare and organize its materials.  Careful documentation will significantly help the Borrower be equipped for the Lender’s review of the Application and any potential audit.  Be sure to keep a record of what the projections looked like for your business.  Your analysis should include several weeks prior to obtaining the Loan and when you applied for the Loan.  It is possible that how things looked for your business at the outset wasn’t how it unfolded, for better or worse, and be prepared to explain the circumstances. 

The Application states that the Borrower must retain all records relating to Borrower’s PPP Loan, including the documentation listed below, in its files for six years after the date the loan if forgiven or repaid in full (in some circumstances, that means the Borrower must retain records for up to eight years - the 2 year maturity date of the PPP Loan plus six years thereafter):

• documentation submitted with your Application
• documentation supporting the Borrower’s certifications as to the necessity of the loan request
• Your eligibility for a PPP Loan
• documentation necessary to support the Borrower’s Application
• documentation demonstrating the Borrower’s material compliance with PPP requirements

The Borrower also must permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.

The Final Interim Rules state that, as a general matter, the Lender will review and determine its Borrower’s loan forgiveness.  Once the Lender receives a complete Application, the Lender has 60 days to issue a decision to the SBA and request payment from the agency.  However, it may not be so simple.  The SBA can review the Borrower’s Loan and the Application and can disagree with the Lender’s conclusion on eligibility. More specifically, the SBA can review whether the Borrower calculated the loan amount correctly, whether it used the loan for allowable purposes, and if it was entitled to partial or full forgiveness.

It is important to note that Borrowers with loans over $2 million will be automatically audited, however, Borrowers with loans under $2 million could face scrutiny and are still subject to audit.  There are other ways that Borrowers can be targeted, including news reports and, as we identified in our Client Alert referencing Civil and Criminal Liabilities posted on May 4, 2020, a number of False Claims Act cases that originate with private whistleblowers.  

In sum, Borrowers need to keep detailed records of how the loan proceeds were spent.  A Borrower must submit several documents with its Application, while other documents must be maintained but not submitted.  Borrowers are encouraged to start organizing their documents now.  Be sure to continually update your documentation.  This will help you be prepared to answer any questions or provide documentation requested by the Lender or years later during an audit. 

*The Attorneys at Levene Gouldin & Thompson, LLP are available to provide advice and counsel concerning these new statutory obligations and other matters related to COVID-19.