Will I go to jail for a PPP or EIDL application mistake?
Borrowers bear the ultimate responsibility for the accuracy of their loan application, and they attest to and certify the accuracy of their information under penalty of perjury. Lending applications involve many different steps and calculations, so mistakes can certainly happen.
If a mistake made in good faith on a PPP loan or EIDL application results in a borrower receiving more money than they were eligible for (called an excess loan amount error), the borrower is unlikely to face jail time. A mistake is made in good faith if it does not involve a knowing misstatement by the borrower or lender. However, there may still be consequences, including:
- The SBA denying the loan forgiveness if the borrower was not eligible for the loan amount.
- The SBA denying the loan forgiveness on the excess loan amount.
- Borrowers repaying the excess loan amount under the terms of the loan note.
A more serious problem, one with criminal consequences, may arise if a borrower falsified information on the loan application. Knowingly using false information in a loan application can result in significant criminal consequences. If convicted, a borrower may be subject to a $5 million penalty and up to 30 years in prison. As long as a borrower did not intentionally misrepresent information on their PPP loan or EIDL application, a simple, good faith mistake on an application is not likely to land them in jail.
What happens if my PPP loan is forgiven due to a mistake I made on the application form?
The PPP loan forgiveness process can be unforgiving when it comes to mistakes. In one instance, a typo involving a misplaced comma cost a small business owner $12,000 in loan forgiveness. It is the borrower's responsibility to provide an accurate calculation of the loan forgiveness amount and any supporting documentation. If a discrepancy is identified by the lender, they have a responsibility to work with the borrower to mitigate it.
That said, the Department of the Treasury and the SBA have not issued guidance for borrowers to correct mistakes on their applications. A borrower can ask their lender to file a form to correct the mistake, but no other guidance has been issued yet on how to fix mistakes.
How can I correct a mistake that I discovered later?
A borrower who received a PPP loan forgiveness may discover a mistake on their application that resulted in their loan being forgiven when the loan wasn't eligible for full or partial forgiveness. If these calculations or representations turned out to be incorrect, the borrower would have to pay back any additional unforgiven PPP loan amount plus interest, which is the outstanding balance accruing interest at 1% for the remainder of the two- to five-year period. A borrower may want to ask a lawyer before deciding whether it would be better to self-report the mistake to the SBA or to wait for an enforcement action by the government to be brought against them.
What should I do if I asked for too much or too little money for my PPP loan or EIDL?
The answer is, "It depends." For a PPP loan, if the amount received is too small or too large, a borrower should speak with their lender directly. If the loan is too small, a borrower's options are quite limited with the SBA and, unfortunately, only certain borrowers may be eligible to reapply for funding. Once a loan has been approved by the SBA, there isn't much else a borrower can do to receive more money. The rules may change in the future, though, so it's always best to consult a lawyer if you find yourself in a sticky situation.
If a small business owner did not take all the loan money that they were eligible for, they can reach out to the lender to hear what options may be available. A borrower may be eligible for an increase in funds in their PPP loan reapplication if they:
- Fully repaid their First Draw PPP loan before December 27, 2020.
- Returned a part of a First Draw PPP loan before December 27, 2020.
- Did not accept the full amount of a First Draw PPP loan for which they were approved on or before August 8, 2020.
If a borrower meets certain criteria, they may be able to increase their loan amount if they have not already received forgiveness on their original PPP loan, and the increase they are requesting doesn't take them above the maximum PPP loan amount approved in 2020.
If a PPP loan borrower needs more money, they may need to explore other options as the period to apply for a second PPP loan ended on May 31, 2021.
If a borrower received too much money, there are limited options to remedy the situation. The deadline for borrowers to return the funds in full to the SBA without any penalties was May 14, 2021. Returning a portion of the loan is not really an option for borrowers. If a borrower is concerned with their loan size, they should speak with their lender to learn their options.
Regarding an EIDL, a borrower can resubmit their application to ask for an increase in funds if they meet the eligibility criteria: either an increase up to the amount qualified for or the $2,000,000 cap, whichever is lower. The amount a borrower may be eligible for is the maximum amount originally approved minus the amount actually disbursed. For example, if a borrower was approved for $500,000 for the first loan but only took $400,000, the maximum second disbursement would be $100,000. However, borrowers should not reapply for another loan. If a current EIDL borrower creates a new application, it may be flagged as fraudulent. Borrowers may be eligible for a second EIDL if they are located in an area with a disaster declaration and have had damage to their home, personal belongings, or business.
If you think you need assistance with your business's PPP loan, EIDL, or other financing issues, reach out to a Rocket Lawyer On Call® attorney.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.