Small-business owners who took Paycheck Protection Program loans and had them forgiven may think they are done with the federal program, but the $785 billion program and the federal government may not be done with them.
With the Small Business Administration, the Treasury Department and the Internal Revenue Service all ramping up scrutiny of Covid-19 relief programs, experts say small-business owners need to hold on not just to their loan documents but any documents they may need to back up why they took out the loans in the first place.
And, while business owners were warned about this back in 2020, the world was operating at a breakneck pace at that time, and a lot has happened since. Additionally, many might not be following developments with the PPP program as they previously were.
Experts say that could add up to costly problems for businesses that aren’t following guidelines.
“Think about how many companies had never done business with the federal government before. Obtaining a PPP loan was a first-time event for many companies,” said Tenley Carp, a partner at law firm Arnall Golden Gregory LLP. “I think this is going to be a bit of a shock to small businesses — those who were not government contractors — about the long tail of the PPP.”
Overall, the SBA made 11.3 million PPP loans across 2020 and 2021 for a total of $785.7 billion in total value. About 93% have been fully or partially forgiven as of Oct. 23, 2022, according to SBA data. But throughout those two years, and especially early on, the Treasury Department and SBA put out wave after wave of guidance, changes and alterations to the loan program, and the finer points may have gotten lost since.
“The communication is out there. The challenge being, despite it being out there, do those involved have the same recollection or awareness?” said Justin Elanjian partner-in-charge of the Paycheck Protection Program and the Employee Retention Credit program at Atlanta accounting firm Aprio LLP.
Forms such as the PPP forgiveness application 3508 stressed that borrowers should “retain all such documentation in its files for six years after the date the loan is forgiven or repaid in full,” as well as permit SBA and its inspector general access upon request or in connect with a loan review or audit.
Other forms, such as the 3508S, required three years of document retention for payroll and employment records and four years for all other documentation that starts at the time of forgiveness or repayment of the loan.
Business owners who used a customized forgiveness portal provided by a lender or were more focused on getting forgiveness might have missed the requirements, Elanjian said, but they should definitely hold on to a wide range of materials.
“The focus of many borrowers and advisers at the time was, ‘How do I get through my current situation, comply with the spending requirements and the information necessary to get to forgiveness?” Elanjian said.
One key document or documents to hold onto was anything that went into the certification and attestation requirements. Those who got loans had to essentially pledge that they were needed at the time to prevent layoffs, or because there was a concern of possible economic damage — attestations that did change depending on when the business took out the loan.
But any documents that showcased the situation the business was in, worries about layoffs or anything related to that nature would be good to keep, Elanjian said, along with any documents required with the application and to support any part of the application but was not actually submitted.
“What will be interesting but equally problematic is going back to the particular certification which is the economic uncertainty. Every borrower of all sizes was required to certify that the loan was reasonable and necessary to support the ongoing operation of the company,” Elanjian said.
Small-business owners who took PPP loans could also end up being the target of False Claims Act lawsuits as the federal government ramps up its efforts punish fraud in the $787 billion program. It all comes as federal agencies enter a period of scrutiny over how the program was run and who got loans that should not have.
In August 2022, Biden signed into law two new pieces of legislation to give the government more time to tackle fraud in the Small Business Administration’s many Covid-19 rescue programs by doubling the statute of limitations for prosecuting fraud cases.
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