In interviews on Tuesday, April 28, 2020, US Treasury Secretary Steven Mnuchin announced aggressive new oversight measures of the Paycheck Protection Program (PPP), the federal government's primary relief program for small business affected by the COVID-19 pandemic. Under the PPP, businesses can borrow up to $10 million for payroll costs and other expenses necessary to keep their businesses afloat, and borrowed funds spent on certain approved expenses during an eight-week period will be forgiven. In his recent remarks, however, Secretary Mnuchin stated the Small Business Administration (SBA) will audit all PPP loans over $2 million before providing any loan forgiveness to these borrowers.
Though Secretary Mnuchin did not provide further details on this audit, it will undoubtedly involve close scrutiny of the required certifications that loan applicants must make when applying for funds, particularly the certification that the funds are necessary to support ongoing operations in light of the current economic uncertainty. Secretary Mnuchin stated on Tuesday that borrowers who falsely attest to this certification will not only be denied forgiveness and be forced to repay the loan, but may also face criminal prosecution.
This warning follows a string of recent news reports identifying numerous large, well-funded companies that have received millions in PPP loans. On April 23, in response to these reports, the Treasury published an update to its FAQ that cast serious doubt on whether "a public company with substantial market value and access to capital markets" could make the liquidity certification in good faith. The same document also provided a safe harbor for borrowers that may be second-guessing their liquidity certifications: the SBA will deem the liquidity certification to have been made in good faith for any borrower that applied for a PPP loan prior to April 23 and repays the entire loan by May 7, 2020.
On April 28, the Treasury issued an additional update advising that this doubt about the eligibility of public companies applies equally to businesses owned by private companies with adequate sources of liquidity to support ongoing operations.
Multiple businesses have since announced that they will be returning their PPP loans. Notably, the Los Angeles Lakers, a preeminent professional basketball team, is among the group that has committed to repaying its PPP loan – news that Treasury Secretary Mnuchin said in an April 28 interview that he was "glad" to hear, as "they would have had liability." Secretary Mnuchin did not expand on his view of why the basketball team would have faced liability.
The Treasury's new oversight measures complicate the calculus for businesses that are considering either applying for a PPP loan, or keeping a loan they have already received. Even if prepared to defend the liquidity certification in a SBA audit – or in a potential criminal investigation – borrowers must also be ready to answer for the loan in the court of public opinion.
Last Thursday (April 23), the Federal Reserve Board announced that it will post "substantial amounts of information" on its website each month regarding the PPP, including the names and details of the participants and the amounts borrowed and interest rate charged. Additionally, on April 20, 2020, Senator Marco Rubio (R-FL) announced that the Senate Committee on Small Business and Entrepreneurship, which he chairs, will conduct aggressive oversight of the PPP. Notably, Sen. Rubio stated that he plans to investigate, among other issues, whether PPP recipients made false certifications to receive loans, and specifically highlighted the liquidity certification.
For more information on oversight of the PPP, please visit our previously published articles: