Recent Guidelines on PPP Loan Forgiveness
Kerry M. Lavelle • April 29, 2020
On Tuesday, April 28, 2020, Treasury Secretary Steven Mnuchin indicated that certain borrowers of Paycheck Protection Program (“PPP”) loans will face scrutiny through a loan audit process to ensure that the loan proceeds are being used properly prior to forgiveness of the loan and that borrowers are able to, in good faith, certify the business necessity of the loan.
The loan “audit” is not the same as a federal tax audit; it is not intended to be a federal tax audit, but rather, to ensure that the PPP loan proceeds are being spent properly, the conditions for forgiveness were met, and that other borrower covenants made with the PPP loan application were accurate.
Mnuchin stated that PPP loans of more than $2M would face full audits with spot checks for smaller loans. Currently, the government is issuing about $660B in loans that can be forgiven if borrowers use them to retain or rehire employees along with other conditions.
Typically, the SBA relies on lenders to service and manage SBA loans. However, in this case, in order to expedite the loan process for small businesses to take advantage of keeping employees on the payroll, the federal government has given local banks and servicers an indemnity where they will not be liable for the fraud of borrowers. Borrowers need only to provide the necessary documentation to its lender required pursuant to the law.
With $660B at stake, that leaves the responsibility to the SBA for ensuring that businesses use the loan money properly.
The SBA has proven to be poor auditors of their own loans in the past. In a 2011 audit of lending to combat the global financial crisis, the agency’s inspector general found “documentation deficiencies” in 40% of the loans it reviewed, resulting in inappropriate, unsupported loan approval.
The general rules are that as long as 75% of the loan is used for salaries, you maintain the same number of employees, and maintain the same payroll, the loan is to be forgiven. But the poorly drafted and hastily passed legislation created many questions among lenders, borrowers, and other professionals. As evidence, the Treasury Department and the SBA have updated their guidance for the program, issued interim rules, modified the application and published FAQs, multiple times since the program started accepting loans on April 3, 2020.
On April 29, 2020, the SBA added that borrowers with adequate sources of liquidity would be unlikely to qualify for the PPP loans, without further detail. The SBA did not address the PPP loans that were already funded but not yet forgiven.
The media has also been reporting cases of large, sometimes public, corporations properly qualifying for the PPP loans, but now returning the money to the government. Many smaller businesses despite submitting applications, failed to receive a loan because the program ran out of funds.
What are the take-aways?
- As of this writing, if your loan is over $2M, you are being told in advance, that you will be audited.
- If your loan is less than $2M, it is probably unlikely that you will be audited, but proceed as though you will be audited.
- Continue to monitor press releases, news stories, and PPP loan updates from your professionals on updates to the loan program. The changes are not done, and the forgiveness detail is still in a state of flux.
- Gather substantiation on all disbursements of PPP loan proceeds.
- At the end of the covered period, you will be asked to prepare a certification that the money was used properly. Have it reviewed by your legal or financial professionals.
Continue to be aware of the constant updates of the law, and if you have any questions contact Kerry Lavelle at klavelle@lavelle.com.
More News & Resources
Lavelle Law News and Events
Other than payroll costs, there is generally no other larger ongoing cost that a business pays than its commercial lease obligation. Moreover, often the term for a typical commercial lease will extend far into the life of any business. Finally, there are a multitude of ways in which a poorly drafted lease can cause a business to incur significant unforeseen costs. Accordingly, it is critical that every business devotes the necessary resources, including the use of an experienced lawyer, to negotiate a fair lease.
A recent press release by the IRS addressed the Fiscal Year (“FY”) 2024 (Oct. 1, 2023 – Sept. 30, 2024) Data Book, describing the Agency’s activities. For the first time, revenue collected exceeded 5 trillion dollars, accounting for 96% of total government revenue. The IRS’s expenditures to collect over $5 trillion were $18.2 billion for overall operations in FY 2024, with 90,516 full-time equivalent employees.
As life changes, it is important to recognize major life events when it is pertinent to prepare, review, or update estate plan documents. Whether you recently got married, just had a baby, bought a house, went through a divorce, have an adult child, or are acquiring assets that may need tax planning provisions, be proactive and make sure the proper estate plan documents are in place.
Key strategies and tools to protect business assets were the topics of Lavelle Law’s Breakfast Briefs presentation on May 21, 2025. Attorneys Matt Sheahin and Jennifer Tee presented important legal strategies for business owners as well as business and office managers, business brokers, and insurance professionals. Topics included Non-Compete Agreements, Shielding Trade Secrets, Nuances of Temporary Restraining Orders (TROs), Injunctive Relief, Contracts, and Managing Risks.
Our client contacted us for advice regarding the termination of a long-time employee who was failing to meet performance standards. Our client already provided several accommodations for this employee, but they still were not meeting the mark.
When people hear “estate planning,” they often picture wealthy individuals with sprawling mansions and complex assets. But the truth is, everyone — regardless of income, age, or family size — can benefit from having an estate plan.
The Internal Revenue Service recently issued a press release addressing the IRS Whistleblower Office’s publishing its first-ever multi-year operating plan that outlines its guiding principles, strategic priorities, recent achievements, and current initiatives to advance the IRS Whistleblower Program.
If enacted, the Junk Fee Ban Act would protect consumers from hidden fees and promote fair business practices in Illinois. While there has yet to be legislation in the proposed Junk Fee Ban Act that excludes dealerships, it will be important to look for future updates on this bill, as Illinois is quickly becoming a hub for vehicle innovation and automotive plant expansion.
When someone passes away owning property in another state, their estate may need to go through ancillary probate—a secondary court process in that state.
Lavelle Law represented a joint venture in its $9.9 million acquisition of four multi-unit buildings.
