What Should Small Business Owners Know About PPP Loan Fraud

Payroll Protection Program (PPP) loans serve as emergency funds for small businesses with less than 500 employees.

But more borrowers are taking advantage of the loan program. So investigations related to PPP loan fraud will most likely focus on small businesses.

Criminal prosecutions related to fraud carry serious punishments. Borrowers accused of PPP loan fraud are prone to face prison sentences and fines.

Are you planning to get a PPP loan for your business? Make sure that you’re aware of the risks involved and how to counter them. Here’s what small business owners need to know about PPP loan fraud.

PPP loan fraud cases continue to rise

PPP loans helped more than 5.2 million business owners to stay liquid during times of crisis.

Majority of the borrowers used the fund they received for legitimate purposes. But despite that, there were still a handful of people who used the program for their own benefit. As of January 2021, the attempted fraud already reached $341 million.

A huge chunk of PPP loan fraud cases in the US is in Miami. A report from Miami Herald said that the FBI named the city as the capital of PPP loan fraud. Hence, the federal government is now focusing its efforts on investigating PPP fraud.

The DOJ has strict measures of investigation

The DOJ reports heightened activities against PPP loan fraud. As of March 2021, they already charged 474 defendants with offenses related to the PPP. They need to recover $569 million of government funds. These cases are from 56 federal districts.

Most of the defendants are charged with PPP loan misappropriation. These borrowers used their loans to buy cars, properties, and pay their personal debts.

Another significant portion is charged with inflating their business’ payroll expenses. Borrowers who did this acquired larger sums of PPP loans.

The DOJ is committed to fighting fraud related to PPP loans. They’re expected to be more strict with their investigations.

Immediate action is needed when facing a DOJ investigation

Keep in mind, the DOJ consistently prosecutes PPP loan recipients accused of fraud. It doesn’t matter if it’s intentional or unintentional. Fraud is still fraud.

If you think you’re accused or charged with PPP loan fraud, it’s best to work with a PPP fraud lawyer right away.

All PPP loan borrowers are at risk

PPP loan fraud is not always intentional. There are some businesses prone to charges because they overlooked some important details. Borrowers with unintended fraud are also liable to the same amount of risk as to the ones who did it on purpose.

The Small Business Administration (SBA) continuously audits small businesses with PPP loans. All small businesses that have PPP loans are on their radar.

If you’re planning to apply for PPP funds, make sure you’re aware of these:

• The loan program is prone to fraud schemes
• Federal governments will continue to be aggressive in their investigations
• It’s difficult to ensure compliance for a loan to be forgiven

Always follow the 60/40 rule

Prevent PPP loan charges by allocating your funds to eligible expenses.

Before, at least 75% of PPP loans were used for payroll expenses. While the remaining 25% were for rent, mortgage, and utilities. It was known as the 75/25 rule.

The PPP Flexibility Act changed the fund allocation recently. The new rule is now 60/40.

At least 60% of loans should be spent on payroll costs. While the remaining 40% should be spent on other eligible expenses.

Most fraud cases were caused by misappropriation. Borrowers were not spending their loans on payroll costs and other eligible expenses.

One of the best ways to stay compliant is to make your PPP funds beneficial to your employees and your business.

Common PPP loan fraud charges

PPP borrowers always fall to one or more of these pitfalls. Make sure to avoid these. Here are the common PPP loan fraud charges.

• PPP application fraud — This is when a borrower uses their own name to apply for a PPP loan. But they used false information or counterfeit documents during the application.
• Fraudulent use of PPP loan funds — This happens when a borrower didn’t spend their loan for eligible expenses. Most people charged with this used their funds for their own benefit.
• Fraud in certification for loan forgiveness — This happens when a borrower fakes information in their forgiveness application.
• Lapping PPP loans from multiple lenders — This happens when a borrower acquires more than one PPP loan to secure more funds.

Being guilty of PPP loan fraud results in catastrophic losses

Borrowers proved guilty of PPP fraud will face prison sentences and crippling fines.

The PPP loan is meant to support your employees and your business and help you with operating costs while profit may be low during the pandemic.

The last thing you need is to be penalized.

Don’t ignore the sanctions related to PPP loan fraud. These charges give penalties of up to $1,000,000 fine and 30 years of prison sentence.