How Long Should I Keep My PPP Loan Records??

SBA guidance has provided record-retention timelines for various types of PPP borrowers, but the length of time varies depending on the type of records involved. For example, SBA-supervised PPP lenders were required to preserve their records for six years under the prior rule. Meanwhile, Form 3508S, the PPP loan forgiveness application, instructed borrowers to retain employment records for four years and all other records for three years.

However, on August 5, 2022, the PPP and Bank Fraud Enforcement Harmonization Act, or “the Act,” went into effect. As a result of the Act, the limitations period for criminal charges or civil enforcement actions alleging borrower fraud with respect to a covered PPP loan is now ten years after the offense was committed.

While a ten-year federal limitations period may restrict the timing of the government’s ability to seek charges for PPP loan fraud, this does not mean that you will not be subject to an investigation before that time is up. If you have any concerns regarding the timing of any PPP loan fraud investigation, it is important to consult with an experienced federal criminal defense lawyer who can offer you accurate and up-to-date information. If you are currently under investigation, you should seek legal counsel as soon as possible.

Finally, in August 2024, the SBA issued an interim final rule announcing extended record-retention requirements for PPP loan lenders. According to the SBA’s interim final rule, lenders are now required to keep their records “for a minimum of ten years.” The announcement explains that this 10-year retention period “All PPP lenders must preserve for at least 10 years following final disposition of each individual PPP loan: i. All applications for financing (including applications for withdrawn, approved, declined and cancelled loans); ii. Lending, participation, and escrow agreements; iii. Financing instruments; and iv. All other documents and supporting material relating to such loans, including correspondence.”

Which actions protect borrowers after federal agents make contact?

By the time federal agents reach out to contact you or your business, they likely already have the records they need. Whether they’ve been in possession of your records for years or hours, the next steps in the government’s investigation will depend on the facts and circumstances involved. The types of documents you receive from the government can signal the government’s next steps.

• Target letter, search warrant, grand jury subpoena, or indictment : These generally indicate criminal scrutiny from the U.S. Department of Justice (DOJ). Each form of contact can signal a different next step (e.g. search warrant means the government believes there is probable cause that evidence of a crime will be found in the place to be searched, and a grand jury subpoena means the government is still seeking evidence).
• Civil Investigative Demand : This document signals that the government thinks it may have evidence to pursue a claim under the False Claims Act.

Regardless of the type of scrutiny involved, when federal agents make contact with a business or individual, it is important to understand and exercise your rights. If agents question you, remember that you can decline to have an interview and you have the right to request that counsel attend. In any case, if federal agents are knocking on your door or calling you on the phone, you should call an attorney to learn what your rights are.

Additionally, if you are being targeted in a federal PPP loan fraud investigation, keep in mind that you could be facing exposure for making false statements to federal agents. This is true regardless of whether you could have successfully defended against the allegations in the underlying investigation. In other words, providing inaccurate or misleading statements during an interview with agents can be a risky move for federal loan fraud defendants, and you should work with your defense team to make informed decisions regarding interviews, statements, and disclosures.

How can a forgiven PPP loan enter federal scrutiny?

While the SBA may have approved your PPP loan for forgiveness, this does not necessarily bar an investigation into your business’s application and forgiveness certifications. After the government issues a forgiveness approval, federal agents can investigate your case based on information obtained from outside sources or reports made by whistleblowers. This includes information such as bank records and other corporate documents.

When federal agents are investigating a potential case of PPP loan fraud, they will often compare PPP information, such as certifications made in the application process, against records obtained from banks, state licensing boards, licensing databases, and other outside sources. This data can reveal evidence of a potential criminal violation in many cases, and this evidence can lead to targeted efforts to seek criminal charges against businesses or individuals.

Additionally, PPP fraud investigators will review records related to corporate formation, tax filings, and ownership structure. These records can show if a business or individual failed to disclose a relevant affiliation, which can lead to charges of affiliation and other forms of PPP fraud in some cases. As a result, PPP fraud investigators can use various methods to ascertain whether a PPP loan was improperly obtained, and they can use this information to pursue criminal charges against borrowers.

The FBI investigates some matters relating to the PPP alongside the DOJ’s Criminal Division, U.S. Attorneys’ Offices, and the SBA’s Office of Inspector General (OIG). The OIG investigates suspected waste, fraud, and abuse related to all SBA programs, including the PPP, and is a member of the Council of the Inspectors General on Integrity and Efficiency. To date, the OIG has arrested and charged more than 1,000 individuals.

At Spodek Law Group the strategy on a case starts the same day the client calls.

Which PPP documents make a ten-year file defensible?

Preserving a comprehensive PPP loan file allows for easier construction of defenses and reduces the risk of missing documents that could prove your innocence. When we defend our clients, we rely heavily on their documentation to establish critical factors including (among others):

• The specific calculations that established eligibility and determined the amount of PPP funding sought
• Payroll records and employee certifications to refute allegations of misclassification or mischaracterization of employee costs
• Bank records and other documents that illustrate the use of funds in compliance with federal guidelines
• Contemporaneous decisions by the client and the client’s advisors that, when made in good faith, demonstrate an intent to comply with all applicable laws and regulations

As a result, preserving all documentation related to your PPP loan application, including the underlying data, is essential. Documents to include in a PPP loan record-retention file include, but are not limited to, the following:

• Application documents: All forms submitted to the lender (including Form 3508 and Form 3508S), payroll documentation used to support eligibility and determine the amount of loan funds, tax filings used to establish eligibility and payroll amounts, internal worksheets used to calculate the PPP loan amount, and all correspondence with the lender.
• Forgiveness documentation: The forgiveness application, supporting documentation used to prove loan eligibility (such as payroll documentation), documentation used to prove loan forgiveness eligibility, and any communication from the lender or SBA regarding forgiveness applications, decisions, or certifications.
• Bank statements: Monthly statements for the duration of the PPP program, PPP loan deposit notices, documentation of all payments made with PPP loan proceeds, and all other financial documentation that can attest to the use of PPP loan proceeds.
• Payroll records: Payroll registers, employee rosters, government furlough documentation, pay stubs, W-2 statements, and any other information that may help establish employee counts, payments made to employees during the loan period, employee reductions or layoffs, and any issues related to rehiring.

Which federal charges can follow PPP allegations?

Regardless of whether you are under a criminal or civil investigation, the outcome of your investigation will largely depend on whether you made a knowing and material misrepresentation. To get a conviction for PPP loan fraud, criminal prosecutors must be able to show that you knowingly and materially misstated information to your PPP lender and/or the SBA during the application and/or forgiveness certification process. They must be able to prove that you knew the information you provided was false and that the information was material enough to impact the government’s decision to lend you PPP loan proceeds.

• Honest calculation errors: An honest calculation error does not establish fraudulent intent. While errors can certainly become the focus of a federal inquiry or investigation, they alone do not establish guilt.
• Reliance on professional advice: If you relied on advice given to you by your CPA or your attorney when applying for PPP loan funding or loan forgiveness, this can be a potent good-faith defense. However, to qualify for this defense, you must prove that you shared all facts pertinent to the professional’s analysis. If you did this and the professional incorrectly advised you that you were eligible, your reliance on their advice should serve to shield you from liability.
• Reliance on your lender’s conclusions: This is another potential good-faith defense to charges relating to PPP loan fraud. If you properly disclosed all pertinent information to your lender and your lender’s analysis of the information led to your loan’s approval and/or forgiveness, you can seek protection from charges based on the conclusions of your lender.

There are numerous federal statutes that can apply to allegations of PPP loan fraud. In criminal cases, prosecutors often rely on a combination of statutes including, but not limited to, the following:

• Wire fraud: 18 U.S.C. § 1343
• Bank fraud: 18 U.S.C. § 1344
• Obtaining property by false pretenses, claims, or representations: 18 U.S.C. § 1344

Talk It Through With a Lawyer

Every case turns on its own facts. Todd Spodek is the managing partner of Spodek Law Group, a second generation firm his father opened in 1976, and the firm takes federal criminal and white collar matters nationwide. Call 888 348 8028 to talk it through.