Paycheck Protection Program Lawyer
The coronavirus pandemic has had devastating effects on countries and economies around the world. While the threat was still increasing exponentially and prevention measures were poorly understood, businesses were forced to shut down in an effort to slow the spread of the virus. To avoid a monumental economic collapse, the United States government established the Paycheck Protection Program to provide forgivable loans to business owners to help cover payroll expenses during the lockdown.
Although the program was started with good intent, the confusing nature of the loan may have led people to inadvertently use the funds incorrectly. Businesses and business owners who incorrectly used the funds could face criminal charges for their mistakes. Several high-profile companies and institutions returned the money once people began to question how necessary it was for them.
To understand more about potential criminal charges, you must first understand the details of the loan.
What is the Paycheck Protection Program?
The Paycheck Protection Program (PPP) was initially created as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was passed on March 27, 2020. The federal relief program was established to provide small businesses with forgivable loans that allowed them to keep employees on payroll while the nation underwent the lockdown requirements due to COVID-19. The idea was to keep people employed who might otherwise be furloughed due to drops in business activity and revenue. Businesses were eligible for loans at 2.5x their average monthly payroll costs, up to a total of $10 Million.
PPP Loan Requirements
Although the bill was intended to help all small businesses who needed the financial support, there were certain requirements that needed to be met for businesses to be eligible. For a company to be eligible, they must meet the US Small Business Administration’s (SBA) size standards, which requires a company to have 500 employees or fewer, or meet the alternative standards.
PPP Loan Forgiveness
Many business owners were excited about the potential of a forgiven loan, but in the rush to apply while funds were still available, they may have misunderstood the rules and regulations surrounding the bill and incorrectly applied for the loan. If the loan is not forgiven, it has a 1% interest rate with a maturity of two years.
Requirements for Forgiveness
One of the most noteworthy elements of the PPP was the prospect of loan forgiveness. For a loan to be forgiven, the small business must use 75% of the funds for payroll (this was later reduced to 60%).
The loans were also initially intended to be spent within 8 weeks of a business owner receiving the funds. However, this has been updated to 24 weeks in an effort to provide businesses more leeway when spending the funds.
Although the primary purpose of the loan was to provide support to business owners who needed extra cash on hand to pay their employees, business owners could also spend a portion of the money on:
- Mortgage Interest
- Utility Payments
Potential Penalties for PPP Loans
Most business owners who applied for the loan may not have fully understood the requirements and rules regarding the funds. Even if they did, there is a good chance they could have inadvertently spent the money in a way that did not meet the SBA’s requirements. What may seem like a minor error could lead to criminal charges.
Recently, the US Department of Treasury Secretary Steven Mnuchin stated that the Treasury would review some loans and could press criminal charges if the businesses failed to meet the programs terms.
Right now, we do not know the exact charges individuals would face for mistakes on PPP loans, but there is a high likelihood that it would be classified as a type of fraud.
Fraud occurs when one person or party makes an intentional misrepresentation of facts with the intent to deceive another party. Individuals who may not have understood all the eligibility requirements of the loan may have inadvertently put themselves in a position to face fraud charges, and a conviction for fraud can lead to jail time and/or hefty fines.
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Common Mistakes Borrowers Make on PPP Loans
The loan was designed to help small business owners keep their workers employed, but the requirements are so strict that businesses could easily make a small mistake that will require them to pay back the loan with interest.
One of the simplest mistakes a business owner can make is not spending at least 60% of the funds on employee payroll. Anybody who owns a business understands that there is a lot more overhead to keeping a business running than just paying employees. A business owner who received the loan may have furloughed some employees and used the capital primarily to pay for other fixed expenses. In March and April of 2020, it was common for businesses to furlough employees so the individuals would be eligible to receive the enhanced unemployment established in the CARES act.
Another common error could be business owners failing to spend the money within 24 weeks of receiving the funds. Although this requirement is significantly more lenient than the 8-week timeframe on the initial bill, this still puts a limit on how owners spend the money to support their business.
How Berry Law Can Help
The PPP was designed to help business owners cope with all the difficulties that accompanied the coronavirus pandemic. However, small mistakes on the loan such as using the money incorrectly or not using it within the specified timeframe could lead to criminal charges. Berry Law has both business attorneys and white collar crime lawyers on staff. If you are facing fraud charges due to a mistake on your PPP loan, we may be able to help. Contact Berry Law today to schedule a confidential consultation.