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With the introduction of Paycheck Protection Program (PPP) loans as a viable way to sustain a business throughout the pandemic came a slew of questions over how money can and cannot be used, and whether you face legal troubles for spending it the wrong way. The same can be said for programs under the umbrella of Pandemic Unemployment Insurance, such as PUA or FPUC. As the government begins reviewing cases of fraud as these programs end, you’ll want to make sure none of your spending or claims of need will come under the scrutinous eye of the Justice Department. Read on to learn about:

  • Use of PPP Loans: Building Your Foundation of Understanding;
  • What Constitutes Fraud or Scams Related to Receiving Government Loans; and
  • Staying Calm if Accused and Easy Steps to Fight Charges.

How Can You Use Your Loan and Apply for Forgiveness? 

PPP loans have specific guidelines for their usage that, if violated, could land you unwanted consequences, such as fraud charges. The following are the authorized uses of PPP loans as specified by the US Government:

  • Payroll (salary, vacation, any types of benefits, leaves)
  • Mortgage interest (from before February 15, 2020)
  • Rent (for a building, space, or vehicle with a lease signed before February 15, 2020)
  • Utilities (electricity, water bills, gas, telephone, internet, transportation costs)
  • Operations expenditures (software, cloud computing, office subscriptions, human resource needs)
  • Property damage costs not covered by insurance
  • Supplier costs (purchase order made before receiving a PPP loan)
  • Worker protection improvements

We will go over what does and does not qualify under these guidelines later, but for now take these at face value. There might seem like there is some wiggle room with each term being more broad than specific, but don’t make too many assumptions—an assumption of what qualifies might quickly turn into trouble.

Business owners who receive PPP loans typically pursue loan forgiveness, whose conditions align with the above conditions. However, as it relates to payroll, there are a few requirements you must satisfy if you want to apply for loan forgiveness:

  • At least 60% of your loan must be used for payroll costs, where the forgivable amount of your loan scales in proportion to the percentage of your loan you spend on payroll. So, if you put all 100% of your $60% on payroll, you will receive full loan forgiveness. However, if you pay less than 60%, expect to see less loan forgiveness.
  • Upon receiving a PPP loan, you must keep the same number of employees on your payroll. If you lose employees, you might need to rehire employees before applying for forgiveness. Do not rehire employees under different circumstances than previous employees—hire in good faith. For all employees making less than $100,000, you must maintain at least 75% of each employee’s total salary. 

It is important to know these conditions if you are planning on applying for loan forgiveness; however, you will also want to know what might be deducted in the event you don’t meet certain criteria.

The Line Between Fraud and Forgiveness

Now that you understand some of the baseline requirements for using your PPP loan, we will cover a few cases that might lead to trouble.

For one, if you use your PPP loan to buy a Tesla, chances are it will cause the Small Business Administration (SBA) to raise their eyebrows. Even more so, if you misrepresent A) the size of your business, B) your approximate monthly payroll, or C) any additional expenditures related to the pandemic, the government might start throwing around terms like ‘bank fraud.’

Keep calm: there is a spectrum to PPP loan issues.

Calling back to Pandemic Unemployment Assistance, one of the lesser ‘penalties’ for collecting money when the state deems you are not eligible to collect is paying back some of the money. The same can be said about misuse of PPP loans; if you spent the money in a way that does not comply with the guidelines, but you believed it did, the SBA may ask you simply to pay back the amount spent. The rest of the loan, if spent in an authorized way, can still be forgiven eventually.

However, if your case falls more into the ‘bought a Tesla’ category, you will need to contact a lawyer. To the SBA, these are more obvious cases of unauthorized spending—that is, they demonstrate a flagrant disregard to their very public guidelines.

The rules are not so cut-and-dry. For one, rent is not just your office space, but also any vehicles you use for your business. In addition, storage, kiosk, and even equipment rentals also apply under the umbrella of ‘rent.’

On the other hand, you cannot use PPP loans to pay for your own rent—even if you were like one of many who had to make their home or apartment their workplaces. One-time rentals, too, like UHAUL vans, do not fall under vehicle rentals because they’re temporary use. All of that considered, if you rent a nicer apartment and begin leasing a Tesla using your PPP loans, you may face some serious charges.

Accused of Something Serious? Here Are Your Next Steps

Caught up in fraud charges? Here are a few crucial steps.

You are never going to lose anything by hiring a lawyer who cares. What does a caring lawyer look like? Someone you trust with your case who’s willing to put all their time and effort into helping you solve your problem. Requesting a loan during tough times shouldn’t be a choice you regret.

Though you might think a criminal defense lawyer costs too much or might not be worth it, just wait and see: the cost is well worth it compared to fines and jail time stacked on top of each other.

A Well-Kept Record Book is You and Your Lawyer’s Best Friend.

If you have gone through the process of applying for a PPP loan, chances are you had to fill out a few documents. Crucial forms, like Form 941 for payroll taxes or insurance filings, should be at your right hand. You should also have any documentation showing your eligibility for loans dating back to February 2020. Show your lawyer any other importation payroll information, as well. These are crucial for your lawyer to use in your defense.

Don’t Make Any Flashy Purchases or Rash Decisions.

The last thing you want to do is something that makes you look that much more guilty than the SBA alleges. So take a break from spending in the short term and wait for things to blow over. At the same time, maintain business-as-usual at your workplace. Please communicate with your lawyer and work assured that they have things under control.

Make sure you do not make any rash employment or payroll decisions, either. If you want to apply for loan forgiveness, you will not get full forgiveness that satisfies the above-mentioned guidelines.

Contact our offices for a free initial consultation if you are facing fraud charges. Our dedicated criminal defense lawyers are well-versed in white-collar crime issues and will mount an aggressive defense for your case. Do not hesitate—call us today!