10 Most Common PPP Loan Forgiveness Issues

PPP Loan Forgiveness Issues
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$793 billion was issued to 11.5 million small businesses through the Paycheck Protection Program (PPP) as part of the Covid-19 relief program. The intent of the money was to allow small businesses to continue to pay employees while they were not working because of the pandemic.

Small businesses that accept PPP loans can apply for PPP loan forgiveness through the US government. This would allow them to use the funds and then not have to pay them back.

However, many small businesses are experiencing PPP loan forgiveness issues. Before your 2nd PPP loan forgiveness application, you want to know what issues to address.

So, what PPP loan problems are arising for those denied applications? If the goal is to forgive loans, then you want to ensure your 2nd PPP loan forgiveness application gets approved. 

Read on to learn what to be careful of when completing your loan forgiveness application to avoid PPP loan forgiveness issues others have faced.

The Top PPP Loan Forgiveness Issues

1. Single Employee Businesses

It’s believed that the PPP program helped preserve around 86 million American jobs. So far, about $10.5 million in loans has been forgiven. 

Interestingly, it seems a high number of businesses with a single employee are finding their loan forgiveness being denied. These would be businesses that are sole proprietorships and independent contractors.

If you’re a single-employee business hoping to get loan forgiveness, you must provide careful documentation to show the funds were used to support your salary. 

2. Full-Time Employee Headcount

There are several requirements for loan forgiveness to avoid PPP loan problems. If your application was initially denied, you might need to work on the documentation to prove you met these requirements. 

One involves full-time employees. Borrowers must maintain their employee headcount at pre-pandemic levels in order to qualify for full loan forgiveness.

You may have furloughed some full-time employees during the Covid shutdowns. The expectation was that you would rehire or replace them, so you had the same number of full-time employees when applying for the PPP. 

You had until December 31, 2020, to retain and show your full-time staff is back to qualify for full forgiveness. You might only qualify for partial forgiveness if you didn’t do this. 

3. Restore Reduced Compensation

Some businesses need to lower salaries during the Covid shutdown. They used the PPP funds to pay the reduced wages. 

One requirement for forgiveness is to return salaries to their previous rate before the reduction. There was an allowable threshold for salary reduction. If a borrower reduces salaries or wages by more than 25%, they may not be eligible for full loan forgiveness.

The expectation is that the salaries get returned from that threshold by December 31, 2020, to qualify for the forgiveness. 

If you didn’t get the salaries returned to their previous rate or only partially did, you may only qualify for a reduced forgiveness, not a complete one.

4. 60/40 Split

Another requirement for PPP forgiven loans was a destination of how the money was spent. Of course, it intended to keep employees on the payroll even if they had been furloughed during the shutdown. 

However, not all PPP funds need to be used for paying employees. The funds from a PPP loan can also be used for. utilities and rent or mortgage payments. If the funds are used improperly, the borrower may not be eligible for forgiveness.

However, 60% of the funds had to get used for payroll expenses. If you didn’t meet or adequately show you completed the 60% threshold, you might not get approval or full forgiveness.

5. Loan Forgiveness Application

The thoroughness of loan application for forgiveness is key to the success of your chance at loan forgiveness. It requires the documentation to prove that your business took the PPP funds and used them as expected for retaining employees and paying payroll.

There’s some indication that the government is looking for applications that show fraud or have falsified documents as part of the forgiveness application.

Be prepared to document the following in your loan application:

  • Employee status for each full-time employee on the payroll
  • Wage or salary rates for each full-time employee
  • Real-estate leases and mortgage paperwork
  • Evidence of rent paid
  • Utility bills

If your initial application got denied, ensure this information was accurately documented. 

6. Request Made Under Oath

The original loan applications made for PPP loans were made under penalty of perjury, and all information was accurate. 

As the government works its way through the millions of applications for loan forgiveness, a big focus is on fraudulent applications or ones that only tell a partial reality. 

You should know that as you submit your application, it’s akin to saying under oath that all information is accurate and truthful. 

You need to be sure all information has met all the required conditions as if you’re under oath.

7. Mistakes of Omissions from Original Paperwork

When PPP loans first became available to small businesses, they were desperate for funds. For many businesses, it was a frenzy to complete the applications for the funds. 

What some businesses are finding as they work on forgiveness applications is that they uncover problems with their initial loan paperwork. 

If you find an error, you should talk with legal counsel before identifying it or waiting for the SBA to see it.

8. False Claims Act 

The federal government wrote the False Claims Act to address potential fraud issues. The expectation is that there will be more situations where the Department of Justice uses the False Claims Act to address fraud problems. 

Many states across the US have also adopted their own versions of the FCA.

9. Check and Double Check

You should expect your forgiveness application or reapplication to undergo significant scrutiny, and you should submit it knowing it’s like you’re under oath. 

Collected data and evidence to support the information in your application is paramount to being given loan forgiveness.

Review the requirements carefully, and gather data and documents to show how you’ve used the PPP funds. 

Ask a trusted advisor or business partner to analyze your application before it’s sent in carefully. You need 100% accuracy in your documentation if you hope to be granted forgiveness. 

10. Changes in Ownership or Structure

Changes in ownership or structure can have a significant impact on a borrower’s eligibility for loan forgiveness under the Paycheck Protection Program (PPP). This is because the program has strict rules and regulations that borrowers must follow to qualify for loan forgiveness.

If there are any changes in ownership or structure of the company, it could potentially affect the borrower’s ability to meet these requirements. For example, if there is a change in ownership of more than 50% of the company, the borrower may need to apply for a new PPP loan and start over with their forgiveness application.

Additionally, if there are any changes in the company’s business structure or operations that impact its ability to maintain payroll or other eligible expenses, this could also jeopardize the borrower’s eligibility for loan forgiveness.

It is important for borrowers to carefully consider any changes in ownership or structure before making them and to consult with their lender and/or legal counsel to ensure they remain compliant with PPP guidelines.

Fix PPP Loan Forgiveness Issues

The good news about a 2nd PPP loan forgiveness application is that you’re more aware of what to do in it to avoid PPP loan forgiveness issues. You also should know where the SBA will focus their attention when reviewing your application.

For more information about the Employee Retention Credit (ERC) or to get your questions answered about the PPP loan forgiveness, contact us to help you through the process. 

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