Small business loans above $2M will be audited
In a recent interview with CNBC, Treasury Secretary Steven Mnuchin announced that businesses receiving loans of more than $2 million from government relief programs intended for small businesses will receive a full audit to ensure the loan was justified. Borrowers – not the banks that stewarded the loans – face criminal liability if they applied for funding that was not truly needed due to the coronavirus outbreak.
In his interview, Mnuchin cited businesses like the Los Angeles Lakers and other large public companies and big chains, saying it was outrageous they took a relief loan meant for small businesses with fewer than 500 employees. The Lakers, along with companies such as Shake Shack and Ruth’s Chris, have since returned the millions of dollars in loans they received in response to the negative backlash.
Mnuchin’s announcement may be worrisome to businesses already struggling to assemble the information required to support a Payroll Protection Plan (PPP) Loan and gather the documentation to support the calculation. McDonald Hopkins’ Dave Kall, Vice Chair of the firm’s Tax and Benefit Department, offers his insight on the PPP loan process and Mnuchin’s announcement:
“Treasury Secretary Mnuchin made it absolutely clear that the SBA will be conducting audits of companies receiving loans under the CARES Act. To that end, companies need to start creating their compliance packages now in order to support the amount of loan forgiveness. But that is not enough. The SBA has issued additional guidance regarding the certification process associated with each loan application. This guidance is retroactive and requires each company receiving a loan to justify that ‘current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant…taking into consideration 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.’ Failure to do so could result in severe penalties for the company and the individual that signed the certification.”