Many Paycheck Protection Program (PPP) loans come with the promise of something no business owner wants: an audit.
Treasury secretary Steven Mnuchin said Tuesday that companies receiving PPP loans in amounts of $2 million or more will be subject to full audits, potentially before the loans are forgiven. Spot checks will happen for smaller loans. Mnuchin, in a combined statement with the U.S. Small Business Administration's administrator, Jovita Carranza, said that regulatory guidance for implementing the procedure is forthcoming.
The statement also noted that a "large number of companies" have returned loan funds in response to SBA guidance "reminding all borrowers of an important certification required to obtain a PPP loan," indicating that many businesses that have applied for a loan were ineligible. More than 200 publicly traded companies, including Shake Shack and Ruth's Chris Steak House, applied for and received PPP loans. Both businesses have since repaid the money.
The audits may strain an already strapped Small Business Administration, the organization overseeing the program. To get a normal 7(a) loan, the SBA relies on lenders to audit the small-business loans themselves. However, under the PPP program businesses don't need to provide as much documentation as usual, which means banks don't have to go through the time-consuming process of checking for fraud or major errors; borrowers just need to provide limited documents, such as payroll forms. This means it's the SBA's responsibility to ensure that businesses meet their commitments for loan forgiveness.
"Do I think some of these banks, from a reputational standpoint, should have looked at some of these companies and said, 'Is this the right thing to do?' Yeah, I think they probably should have done that," Mnuchin told The Wall Street Journal.