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What if I Unintentionally Violated PPP Loan Rules?
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What if I Unintentionally Violated PPP Loan Rules?
Getting money from the government sounds great until you have to follow all their rules. The Paycheck Protection Program loans during COVID were a huge help for lots of small businesses – but now some folks are finding out they may have goofed on some of the fine print. If you took out a PPP loan and think you might have accidentally broken some of the program’s rules, don’t freak out. Here’s what you need to know.
Mistakes Happen
First off, don’t beat yourself up too much. These government programs can have super confusing requirements, and the PPP loans definitely fell into that category. Lots of business owners got tripped up on stuff like how to calculate payroll costs or what you’re allowed to spend the money on. Even bankers giving out the loans didn’t always get it right. Bottom line – if you made a mistake with your PPP loan, you’re definitely not alone.
The Most Common PPP Mix-Ups
While every PPP loan situation is different, there are some common ways folks unintentionally broke the rules. Here are some of the big ones:
- Spending too much on non-payroll costs – You can only use 25% of the loan on rent, utilities, etc.
- Not spending enough on payroll – At least 60% needs to go toward payroll.
- Calculating payroll costs incorrectly – Lots of confusion around what counts.
- Not meeting full-time employee thresholds – Loans over $2 million have staffing requirements.
- Missing paperwork deadlines – You only have 10 months to apply for forgiveness.
If any of those sound familiar, here is some advice…
Should You Come Clean?
If you catch a mistake early, it’s best to be upfront and let your lender know ASAP. They may be able to fix it with no harm done. But what if it’s too late for that? Do you really need to confess you goofed?
Well, part of PPP loan forgiveness requires you to certify that you followed all the rules. If that’s not totally true for you, reporting it could technically be considered fraud. But unless you really took the money and ran, the consequences of admitting you messed up are usually pretty minor.
The Small Business subreddit has some good discussions on this. One user said they came clean about not meeting payroll requirements, and the only outcome was a slightly smaller loan forgiveness amount. Another said their CPA is having them repay about $1000 of their $20k loan. So while you don’t want to hide anything intentional, owning up to minor accidents is unlikely to turn into a big thing.
Can You Still Get Loan Forgiveness?
In most cases – yes. Unless you really broke the rules, there are options to correct your errors:
- Adjust your forgiveness calculations
- Change your loan forgiveness timeline
- Return some of the loan principal
The Small Business Administration (SBA) and most lenders are focused on helping borrowers, not punishing them. As long as you aren’t hiding anything major or acting in bad faith, you can probably find a solution. This Avvo Q&A covers some good examples of fixing honest PPP mistakes.
Worst Case Scenarios
While the SBA is generally pretty flexible, they do still have enforcement options if someone is clearly abusing the system. Here are some scenarios that could lead to serious consequences:
- Falsifying documents or lying on your loan application
- Spending funds on personal costs instead of business needs
- Deliberately overstating payroll numbers to get bigger loans
- Taking multiple loans for the same business expenses
In cases like these, you may have to repay the full loan amount. You could also face civil and criminal penalties for financial fraud. So while minor slip-ups usually aren’t a huge issue, don’t mistake the PPP program’s generosity for being a free-for-all.
This FindLaw article has more details on potential penalties for PPP fraud.
Get Some Expert Help
Trying to fix PPP issues on your own can be frustrating and confusing. Most business owners don’t have time to become experts on complex government lending programs.
Instead, consider getting some professional assistance. Accountants and business lawyers regularly help clients correct PPP issues, negotiate with lenders, and properly document everything. This can give you confidence that any problems get fully resolved.
If your business is small, you may qualify for free or low-cost help. This LawInfo guide covers different options for PPP support available to small business owners.
Don’t Panic – You’ve Got Options
Accidentally breaking some obscure PPP rule doesn’t make you a criminal mastermind. The program has lots of complex requirements, and slip-ups happen. Don’t let worries about this ruin your mental health or business plans.
In most cases, being upfront now and working with your lender or the SBA will keep any problems from turning into a big mess later on. And getting some professional assistance can help ensure you check all the right boxes. With a proactive approach, a minor PPP mishap doesn’t have to turn into a major disaster.
The government spent over $800 billion on PPP loans, knowing that perfection wasn’t realistic. As long as you aren’t completely taking advantage of the system, you should be able to address any issues that come up. Stay positive and focus on moving your business forward.