As of May 2024, the U.S. Small Business Administration (SBA) had flagged nearly 38,000 already-forgiven Paycheck Protection Program (PPP) loans that it suspected borrowers were ineligible for. The SBA has and will continue to exercise its authority to claw-back funds from borrowers who it believes were ineligible. This is highlighted by its latest target, Planned Parenthood Federation of America, Inc. (PPFA), who is now under the gun to respond to thirty-eight different requests for information regarding its affiliates’ PPP loan eligibility. In this blog, PilieroMazza highlights steps borrowers should take when they receive an SBA request for information regarding a PPP loan.[1]
Back in 2022, the SBA’s Office of Inspector General (OIG) had identified 179 PPP loans made to potentially ineligible nonprofits, including one PPFA organization, one Goodwill organization, and one YMCA organization. The OIG found that the individual PPFA organization had met the loan eligibility requirements, but nevertheless recommended the SBA review all 179 loans for compliance with affiliation and size standards to ensure the eligibility requirements were met. Now, PPFA is tasked with responding to thirty-eight different requests for information regarding potential affiliation between several alleged affiliates. If it fails to respond in a timely manner or explain why these alleged affiliates are not actually affiliated, the SBA could claw back millions of dollars in PPP funds.
The PPP’s complexity, compounded with the fact that the Government promulgated a multitude of interim final rules in 2020 that continuously changed the program’s requirements, was a nightmare for small businesses across the country. Unbeknownst to many, the most difficult part of the PPP was complying with the SBA’s affiliation rules—which it now seeks to hold PPFA and its alleged affiliates’ accountable for. The SBA’s review of PPFA should be a friendly reminder to all PPP borrowers that simply because you received forgiveness does not mean you will not necessarily have to repay the loan. The government has several tools at its disposal to conduct a review of a PPP borrower’s eligibility for the loan.
To the extent you receive a request for information from the SBA (or from your lender on behalf of the SBA), there are several steps we recommend taking to reduce your chances of having to pay the loan back, plus any accrued interest:
- Maintain Robust Record-Keeping. Generally, borrowers are required to retain all PPP loan documentation for size years after the date the loan is forgiven or repaid in full. PPP lenders must retain PPP-related documentation for ten years from the date of final disposition of each loan. It is imperative that you continue to store and maintain all PPP-related documentation in an organized file. It will likely be insufficient to claim that you could not locate the documents or that the lender should provide them instead.
- Determine Relevant Deadlines. The SBA’s requests oftentimes come with deadlines to respond under five, ten, or twenty business days. For many businesses who have long forgotten about their PPP loans, these deadlines can be difficult to meet. Failing to respond could result in the SBA issuing an FLRD, forcing the borrower to spend additional time and money to appeal before the SBA’s Office of Hearings and Appeals (OHA).
- Provide All Requested Information. While it appears obvious, the SBA’s requests can ask for varying types of information. Sometimes it can be as simple as providing the relevant payroll information that supported your maximum loan amount. Other times, the borrower will have to explain why it was not affiliated with any alleged affiliates that SBA may have uncovered during its review. To the extent information is not provided or the explanation is insufficient to demonstrate eligibility could result in the SBA issuing an FLRD denying forgiveness.
As mentioned above, the post-payment review targeting PPFA is centered on the SBA’s affiliation rules. The term “affiliation” here does not mean the affiliation rules in the tax code. Conducting any analysis of whether a borrower was affiliated with another entity requires a comprehensive understanding of corporate relationships and the SBA’s applicable affiliation rules. It is critical to engage with counsel who understand both, especially the ins-and-outs of the detailed affiliation principles prior to responding to any SBA request for information. Doing so could be the difference between full forgiveness and having to pay back the Loan in full, plus interest.
If you have any questions regarding SBA’s affiliation rules applicable to the PPP or any particular concerns regarding your individual loan, please contact Cy Alba, Daniel Figuenick, or another member of PilieroMazza’s Government Contracts Group.
[1] This blog focuses on the SBA’s post-payment review of PPP loans before the SBA issues a final loan review decision (FLRD), as blogged about here, and generally before the U.S. Department of Justice (DOJ) gets involved with a False Claims Act suit, as discussed here.
