Mitigating Risks of PPP Loans

This information is current as of 5/13/20.  If you have questions or are considering taking action, you should speak with a CPA or attorney to discuss your specific situation.


The Payroll Protection Program (“PPP”) was written, launched and implemented as a swift response to the economic hardships of COVID-19 on small businesses. It was clear from the initial launch that details of the program would be forth coming. However, these details have been sporadic and vague at best, leaving many to wonder and speculate on both loan forgiveness and possible future PPP audits.

On April 28, 2020 U.S. Treasury Secretary Steven T. Mnuchin, along with the SBA, announced they would be reviewing all PPP loans in excess of $2M and other loans as appropriate. They also indicated large companies that have liquidity and access to capital should reevaluate their needs for a PPP loan and return the money by May 14th, 2020 as part of a “safe harbor”.


Our recommendation:

Business owners should conduct an internal assessment of their current and short-term operations and finances in light of the economic hardships imposed by COVID-19. This can be as informal as an internal email or as formal as a board presentation or written memo. However, the documentation should be stored should the SBA or regulatory bodies audit the business’ need for a PPP loan at a future date.

The government is continuing to update and release new information concerning PPP loans. Until they provide additional guidance, borrowers should seek advice from their legal counsel.  Borrowers have to determine their own factors to include as part of their internal assessment on whether to accept (or keep) PPP funds or return them by May 14th, 2020. We recommend business owners include the following questions as part of their internal PPP assessment:

  • Has the company had to close or alter operations due to COVID-19? Has this impacted revenue?
  • If the company had to close, what is the re-opening plan? Is demand for goods/services expected to be lower after the company re-opens?
  • Has there been a reduction of customer orders or customers reducing the amount of their orders? Have customers cancelled or postponed their orders?
  • Are customers inquiring to change their payment terms or push out their bill due dates?
  • Was there an increase in March and April as customers increased their inventory, but a drop is expected in the coming weeks?
  • Has the company conducted layoffs, furloughs, or salary decreases?
  • Has the company suffered a loss in productivity due to employees being required to work remotely and/or care for children who are unable to attend school or day care?
  • Is the company taking steps to preserve working capital? Such as a hiring freeze, delaying large purchases or office improvements, or otherwise reducing costs?
  • Has the company sought advice from external or internal counsel?
  • Has the company attempted a financial projection of the next few months? What did they use to create this projection?
  • Are there any delays or expected delays with the company’s supply chain? Have materials suppliers cancelled or delayed orders to the company?
  • Does the company have access to credit or liquidity from banks, equity owners, or other third parties? If so, what are their terms and how would a loan from them impact the business?
  • How likely is a default on existing credit lines? For example, is the company having a hard time paying its bills on time?
  • Are there reasons the company may want to avoid government scrutiny?
  • Could the company tolerate negative publicity?
  • Are the company’s competitors also facing declining revenues or other similar challenges as your company?


At minimum, Adam Shay CPA, PLLC recommends the following:

  1. Be prepared that with any government funded program, there are certain rules you must abide by and documentation that will need to be produced.
  2. Put internal controls in place (internal assessment) to be able to support your position on why your company needed a PPP loan and the use of its funds.
  3. Consider the other benefits of the CARES Act your company can take besides PPP – such as the employee retention tax credits and tax deferrals.
  4. There is no requirement that the entire PPP loan is forgiven.  If all or a portion of it is not forgiven, the rest is a loan at a 1% interest rate over a 2 year term. Or your business could repay a portion of the loan early.
  5. Provide regular updates to the company’s managers on the use of PPP funds and the impact PPP has had on the company.
  6. Review PPP guidelines as they continue to emerge and if guidelines are unclear, take a conservative approach.
  7. Seek outside counsel should the SBA or regulatory agency inquiry regarding your PPP loan.