Since the Paycheck Protection Program launched last spring, it has disbursed $780 billion, including more than $12 billion to U.S. contractors. Now, as the second iteration of the program winds down, borrowers are wondering how to achieve forgiveness.

The important thing to note, according to presenters at a recent webinar sponsored by the law firm of Dorsey & Whitney, is that PPP forgiveness is not guaranteed.

Ranging in size from less than $50,000 to more than $5 million, PPP loans are forgivable if a business uses them according to the program’s guidelines. Borrowers must devote at least 60% of the proceeds to payroll costs and 40% to certain expenditures like rent and utilities. Even if a business falls short of that threshold, partial forgiveness may be an option.

Small business borrowers can apply for forgiveness once all the money from the loan has been spent, up to the maturity date of the loan. If borrowers do not apply for forgiveness within 10 months after the last day of the covered period, then PPP loan payments will no longer be forgiven, and borrowers must begin making loan repayments to their PPP lender, according to Forbes.

Appealing the decision

The steps to forgiveness start with completing the loan forgiveness application and submitting it to the lender. The lender has 60 days to review the application and submit it to the SBA, which has 90 days to make a decision regarding forgiveness, said presenter Ken Logsdon, partner in Dorsey & Whitney's Salt Lake City office.

Companies that are turned down for forgiveness should be ready to contest the decision, the presenters said. Construction firms facing this decision have the option of complying with the decision or launching an administrative appeal.

Companies choosing the latter course must file an appeal petition with the SBA’s Office of Hearings and Appeals within 30 calendar days. An administrative law judge will be tasked with deciding whether the SBA loan review decision was based on clear error of fact or law, Logsdon said.

Error can be very hard to prove, according to Douglas S. Lang, of counsel with Dorsey & Whitney's Dallas office. The petition must include, among other elements:

• A copy of the SBA loan review decision.
• A full and specific statement as to why the SBA loan decision was alleged to be erroneous.
• The relief sought.
• The name, contact information and signature of the appellant or attorney.

The judge will issue his or her decision within 45 calendar days and it will contain "findings of fact and conclusions of law," the reasons for those findings and conclusions and any relief the judge orders. The decision is essentially final and enforceable 30 days after the decision it is rendered, Lang said.

Potential audits

The attorneys said it's important to note that SBA reviews are mandatory for borrowers receiving more than $2 million. Nevertheless, companies that received less than $2 million also may be audited. Moreover, it could take as long as six years for the SBA to conclude its audit program, said presenter Kirk Schuler, partner in the law firm's Des Moines, Iowa, office.

"The SBA announced in the fall of 2020 that it will start with reviews of loan eligibility for loans over $2 million," Lang wrote on the legal website JD Supra. "That does not mean loans under that level are off the hook. This is just where the SBA is starting its process."

If a forgiveness review or audit investigation finds false statements, attempts to conceal an obligation to the U.S. government, failure to return overpayment, conspiracy to defraud the U.S. government or retaliation against employees for engaging in protected activities, the result could be civil penalties and far more. 

Since last year, the U.S. Department of Justice has brought dozens of criminal charges for PPP fraud across the country. For instance, a Fort Myers, Florida, contractor was charged in September with making a false statement to a lending institution. If convicted, he faces a maximum penalty of 30 years in federal prison.

According to the complaint from the United States Attorney's Office for the Middle District of Florida, Casey David Crowther sought and received more than $2 million through a PPP loan on behalf of his company, Target Roofing & Sheet Metal. Crowther allegedly submitted a loan application that included false and misleading statements concerning what the PPP funds would be used for, specifically that the PPP funds would only be used for business-related purposes, to retain workers, and maintain payroll or make mortgage payments, lease payments and utilities payments. 

What’s next? According to Schuler, from now through 2026 expect additional SBA forgiveness reviews, appeals and audits, and probably hundreds of False Claims Act investigations into cases of fraud, waste and abuse.