The coronavirus crisis and subsequent government shutdown resulted in a great deal of economic uncertainty for business owners and workers across the United States. In an effort to minimize the impact of COVID-19 on small businesses and their employees, the federal government introduced the Paycheck Protection Program (PPP), a $670 billion loan program administered by the U.S. Small Business Administration (SBA). The program was intended to help businesses keep their operations going and their workforce employed during the pandemic by offering emergency financial assistance. As with any government stimulus program, there is a potential for fraud to occur in connection with the Paycheck Protection Program, and the federal government has already begun investigating and charging PPP loan fraud cases. Any allegation of fraud in connection with the Paycheck Protection Program is a serious matter requiring the expertise of a knowledgeable federal criminal defense lawyer. If your company is under investigation for PPP loan fraud, do not hesitate to hire a qualified PPP attorney to represent your case. Our attorneys are skilled in all matters relating to fraud and we can help you fight allegations of federal PPP loan fraud.
Can I apply through multiple lenders? What is the deadline to apply? Do I qualify for a PPP loan? What is the Paycheck Protection Program?
The CARES Act
In March 2020, the federal government signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion relief act intended to provide much-needed financial assistance to individuals, businesses and government organizations affected by the COVID-19 health crisis. One major component of the CARES Act was the creation of the Paycheck Protection Program, an economic stimulus program meant to help keep American workers employed and small businesses running during the coronavirus pandemic.
PPP Loan Details
The PPP loan program was created to provide relief for small businesses affected by COVID-19. It provides a direct incentive for small business owners to keep their employees on the payroll during the coronavirus pandemic by offering them a low-interest, government-backed private loan that could be forgiven so long as they retained their workforce and used the funds for eligible business expenses. The PPP loan program was intended to support the following entities affected by COVID-19:
- Small businesses that meet the SBA’s size standards
- Sole proprietors, independent contractors, gig workers and self-employed individuals
- Any business, 501(c)(19) veteran organizations, 501(c)(3) nonprofit organization, or tribal business concern that has 500 employees, or, if more than 500, that meets the SBA industry size standard
- Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and fewer than 500 employees per location
Paycheck Protection Program and Health Care Enhancement Act
The Paycheck Protection Program started out at $349 billion, but the funding was depleted within weeks as U.S. business owners desperate for financial assistance scrambled to apply for PPP loans. On April 24, 2020, the president signed into law the Paycheck Protection Program and Health Care Enhancement Act, which contributed an additional $321 billion in funding to replenish the PPP program. Under the Act, a portion of the replenished funds ($60 billion) was set aside for small, midsize and community lenders.
Paycheck Protection Program Flexibility Act
Originally, business owners were required to use at least 75% of the PPP loan on payroll and the other 25% on eligible expenses in order for the loan to be forgiven. This rule, known as the 75/25 rule, was relaxed under the Paycheck Protection Program Flexibility Act, which was passed to make the terms of PPP loans more accommodating and make it easier for businesses to get the loans forgiven. The new 60/40 rule established under this Act states that business owners must use at least 60% of the loan on payroll and the other 40% on eligible expenses in order for the loan to be forgiven.
Another important change the Paycheck Protection Program Flexibility Act made to PPP loans has to do the eight-week forgiveness period. Initially, the Paycheck Protection Program was only meant to cover up to eight weeks of expenses. However, the Act extended the covered period to 24 weeks, giving businesses more time to spend the funds.
Benefits of PPP Loans
Loans distributed under the Paycheck Protection Program are more extensive than SBA disaster loans and many businesses affected by COVID-19 can qualify for help under the Paycheck Protection Program. No collateral or personal guarantees are required for PPP loans and neither the government nor lenders will charge small businesses any fees. Loan payments will be deferred for six months and the loan will be fully forgiven if the funds are used for payroll costs and eligible expenses. PPP loans that are not forgiven have an interest rate of 1% and a maturity rate of two years, which means they must be repaid within two years. PPP loans issued after June 5, on the other hand, have a maturity rate of five years.
PPP Loan Forgiveness
The most attractive feature of the Paycheck Protection Program is the fact that the loans can be 100% forgiven, so long as the business meets the required employee retention criteria and uses the funds for eligible expenses, such as payroll costs, utilities, and interests on mortgages and rent payments. PPP loan forgiveness is based on the employer doing two important things:
- Keeping their employees on the payroll or quickly rehiring employees who were laid off, and
- Maintaining employees’ salary levels.
In order for the loan to be forgiven in full, at least 60% of the loan amount must be used to cover payroll and costs related to employee benefits. This includes salaries, wages, commissions, tips and bonuses (capped at $100,000 per employee), plus sick leave, vacation pay and other such costs. The other 40% of the loan amount can be used to cover rent and lease payments, mortgage interest payments and utilities.
Federal PPP Fraud
As of July 22, 2020, nearly five million PPP loans had been approved, totaling more than $518 billion, with an average loan size of $104,289. Because of the number of PPP loans that were approved, the speed at which the loans were processed, and the limited safeguards in place to prevent fraud, it is possible that some fraudulent or inflated PPP loan applications were approved. As part of the PPP loan application, applicants were asked to certify that certain statements were true, and any bad-faith certifications have the potential to result in federal fraud charges. The mandatory certifications for securing funds under the Paycheck Protection Program include, but are not limited to, the following:
- Current economic uncertainty due to COVID-19 makes the loan necessary to continue business operations,
- The loan will be used to retain workers and maintain payroll and/or pay mortgage, lease and utility payments, and
- The loan applicant has not and will not receive another PPP loan from a different lender.
Business owners who misuse PPP funds or submit a fraudulent Paycheck Protection Program loan application can face criminal charges for PPP fraud, a federal offense carrying serious, long-lasting consequences. Some of the potential charges that can be brought in connection with PPP loan fraud carry a ten-year statute of limitations, giving federal law enforcement agencies plenty of time to pursue criminal charges.
Examples of PPP Fraud
Business owners and employees across the country were hit hard by COVID-19 and the subsequent shutdown, which resulted in significantly reduced business operations and mass layoffs affecting tens of millions of Americans. Many qualifying small businesses and other organizations have since applied for PPP loans because of a legitimate financial need. Others have attempted to obtain PPP funds fraudulently by intentionally misrepresenting information on their loan applications, while others still, have been accused of fraud because of an honest mistake or misunderstanding. Filling out a government loan application and understanding how PPP is calculated can be confusing, and it is possible to face criminal charges for attempting to defraud the government or a financial institution without even realizing that you did anything wrong. The following are some examples of actions that may constitute federal PPP fraud:
Consult a PPP Attorney for Qualified Legal Representation
Billions of dollars in PPP funds have been distributed to businesses struggling to stay afloat during COVID-19, to support ongoing business operations and help them avoid having to scale back business or lay off employees. However, some individuals and business owners have been accused of obtaining PPP loan funds fraudulently. The FBI and other federal law enforcement agencies have promised to aggressively pursue criminal charges against any individual or business attempting to take advantage of the coronavirus pandemic to commit fraud, including PPP loan fraud, and already, more than a dozen individuals accused of defrauding the PPP loan program of millions of dollars have been criminally charged by the Department of Justice in New York, Massachusetts, Texas and Iowa. If you have been arrested or charged with PPP fraud and you are facing federal prosecution, you need the assistance of an experienced federal criminal defense attorney who can ensure that your rights are protected.