In the wake of the COVID-19 pandemic, the US government has instituted a number of measures to rehabilitate the economy, including multiple emergency funding programs for businesses. For small businesses, the flagship relief program is the Paycheck Protection Program (PPP), established under the Coronavirus Aid, Relief and Economic Security (CARES) Act and administered by the Small Business Administration (SBA). Under the PPP, small 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 will be forgiven.

As the dust settles on Capitol Hill, however, lawmakers are shifting from taking steps to salvage the economy to demanding accountability over the recently established emergency funding programs. These oversight crosshairs have now been trained on the PPP.

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. Citing "multiple reports of companies abusing the program," Sen. Rubio stated that he plans to investigate, among other issues, whether PPP recipients made false certifications to receive loans. Notably, Sen. Rubio specifically highlighted the CARES Act requirement that applicants certify that the loan is necessary to support ongoing operations due to the current economic uncertainty. In his announcement, Sen. Rubio stated that the Committee will use its subpoena power to compel cooperation if companies are not forthcoming during the investigation.

Sen. Rubio's announcement is unsurprising. Even before the legislation was finalized, the CARES Act's unprecedented $2.2 trillion stimulus package prompted lawmakers on both sides of the aisle to demand robust oversight procedures. Further, this comes on the heels of the SBA's announcement on April 16, 2020 that the initial appropriation of funds had been spoken for – in just 13 days, businesses had depleted the entire $349 billion originally set aside for the program.

Sen. Rubio's announcement came in the wake of press reports that PPP loans were awarded to a significant number of public companies, including some large restaurant chains. While these awards were not necessarily in violation of the statute, these reports raised frustration among a number of congressional leaders that the funds were not reaching their intended recipients.

Senator Rick Scott (R-FL), for example, stated on April 20 that "many businesses with thousands of employees have found loopholes to qualify for these [PPP] loans meant for small businesses." He alleged that millions of dollars in PPP loans were being "wasted," as companies that have not been harmed by the coronavirus crisis are participating in the program.

The scrutiny on the initial $349 billion in PPP loans will no doubt continue to intensify on Capitol Hill, and companies that have submitted applications – or are thinking of doing so – must carefully consider the oversight risks that may come with participating in this program. The early experience demonstrates that recipients will be subject to scrutiny from regulators, Congress and the media. Even if the funds are put to their intended use, recipient companies must be prepared to justify the need for the funds and compliance with the other eligibility requirements. This is particularly important if applicant companies are certifying that they comply with the PPP affiliate rules despite major shareholders or other investors with more than 500 employees in the corporate family.

According to SBA data (current as of April 16), over 1.6 million loans have been approved in all 50 states and territories. Roughly 74 percent of these loans were for $150,000 and under, and the average loan size was $206,000. PPP loans have been disbursed across a wide variety of industries, with the largest percentages of loans going to construction; professional, scientific and technical services; manufacturing; and healthcare and social assistance, respectively. Congress is widely expected to pass legislation providing an additional tranche of funding for the PPP in the coming days.


Head of Risk Advisory, United States
Senior Associate

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