From Fox Business to the Wall Street Journal to the Washington Post, all signs point to widespread audits of SBA PPP Loan recipients.
Despite pressure, publicly held companies in business sectors from hotels to cruise ships are refusing to give back SBA PPP funds. The SBA has said that public companies with “substantial market value” and the ability to raise money through capital markets were not the intended recipients of the Small Business Payroll Protection funds. Those funds, which were depleted by large loans taken by these companies and re-funded last week, were meant to help small businesses, as the name of the administering agency would suggest.
Treasury Secretary Steven Mnuchin announced on Tuesday, April 28th that the federal government plans to audit all loans over $2 million. The SBA PPP Loans are built to be forgivable if the recipient of the funds uses 75% of those funds to pay payroll costs and the remaining 25% for operating expenses. The goal, in the midst of the massive unemployment wave is to keep employees on the payroll.
“Anybody that took the money that shouldn’t have taken the money, one, it won’t be forgiven and two, they may be subject to criminal liability, which is a big deal,” Mnuchin said in an interview on Fox Business. “I encourage everybody to look at this and pay back these loans now so we can recycle the money if you made a mistake.”
Shake Shack and Ruth’s Chris Steak House have already announced plans to return their SBA PPP loan funds. As of Wednesday evening, the SBA had approved nearly $90 billion in loans from more than 960,000 applications in the second round.
Businesses whose loans were under the $2m amount mentioned by Mnuchin should take heed. Impeccable financial records will be necessary to ensure loan forgiveness. Business owners should put SBA PPP funds into a separate account, pay ONLY payroll costs with 75% of the funds and use a spreadsheet or other tool to track where the money goes. There is almost certain to be a wave of audits as banks, the SBA and the IRS examine the veracity of claims that funds obtained through the SBA PPP were used for payroll and helped companies stay in business during the novel coronavirus pandemic, stay at home order and global economic slowdown.