As everyone already likely knows by now, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provided for nearly $350 billion to small businesses via the Paycheck Protection Program (“PPP”).  After PPP funding ran out of funds in less than two weeks, Congress passed additional legislation providing for an additional $310 billion in PPP loans.  While many small businesses throughout the country are in desperate need of these funds in order to survive, applicants and recipients should be very cautious while going through the process and pay very close attention to all of the required attestations and certifications that they must complete to obtain funds.  

In its recently updated FAQs related to PPP loans, the Treasury Department issued guidance on its “necessity” certification.  Specifically, the Treasury Department’s guidance on the topic states:  

In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.

The broad and relatively vague nature of this guidance virtually ensures a plethora of investigations and audits moving forward.  Also of note, Treasury Secretary Steven Mnuchin said earlier this week that the federal government will audit PPP loans above $2 million and warned of “criminal liability” for companies that improperly receive PPP funds.  

As with any submission to the federal government, particularly when the purpose of the submission is to obtain government funds, businesses face potential serious criminal, civil, and administrative liability for any misrepresentations or false statements.  PPP applicants and recipients are strongly encouraged to review the certifications and representations carefully and to make sure that they maintain sufficient documentation demonstrating their compliance in case of an audit or investigation.

The attorneys at Chilivis Grubman regularly represent businesses and individuals in connection with government investigations and audits.  If you are in need of such services, please contact us today.