The Small Business Administration's Paycheck Protection Program has been a lifeline to many during the pandemic, but in order to receive it business owners had to prove that they needed the money due to the economic impacts of COVID-19 "in good faith".  

After the Treasury Secretary Steven Mnuchin announced that the SBA would be auditing borrowers over $2 million to make sure they actually needed their loans, many business owners were concerned that the agency would soon expand to auditing all recipients.  But the good faith certification--and audits to prove it--are not designed for small businesses. They're targeted at large corporations.

SBA Will Not Investigate Smaller Loan Holders

The SBA has clarified their decision and has announced that they will only be returning to and reviewing the applications of firms that received PPP loans of over $2 million. Everyone who was given less than $2 million--which is most of the recipients of the program--will be assumed to have met the good faith standard.

"Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith," the SBA added to their FAQs.

80% of Borrowers Received Less than $2 Million

Only about 20% of borrowers in the PPP program received over $2 million, so most business owners can breathe a sigh of relief that they won't face an audit. The few firms that did receive millions were mostly large corporations.

The average loan amount for the PPP was much more modest than $2 million--just $206,000. And nearly 3/4 of loans approved were for less than $150,000.  Those companies that did receive over $2 million have until Monday to return their funds or face an audit.

A Response to Poor Publicity Over Large Borrowers

The SBA received serious backlash from the public after it became known that major corporations, like Shake Shack and Hallmark, received PPP loans, some for millions of dollars.

In response to the criticism, the SBA decided to investigate.  Because the intention of the PPP program was to protect those companies that might not have other sources of credit or assets, the agency is now asking major corporations to prove that they needed the funds they were given.

"It is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification," said SBA officials.

So if you're a small business owner or even a midsize company and received necessary funds to keep your business afloat, you don't need to worry. You'll still need to be careful about how you use your PPP loan to make sure that it's forgiven fully, but you shouldn't have to deal with an audit.

If you haven't applied for a PPP loan yet and could use the money, we can help you navigate the process! Check out our membership program today!