PPP Loan Fraud

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A few months ago, I made a video about Paycheck Protection Program PPP loan fraud. At first, no one watched the video. However, I’ve noticed tens of thousands of people have recently been watching that older video on PPP loan fraud.


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I think some of this interest comes from people who applied for PPP loans and are worried that they did something wrong.

I believe education is power. If you are worried about PPP loan fraud, then I’m going to walk you through what’s going on.

PPP Loan Fraud


PPP Loan Fraud Jail Time

There are stories nearly everyday in the news about someone getting arrested for PPP loan fraud and getting serious jail time. These reports fall into one of three categories: violations in the attainment of PPP funds, fraud due to the misuse of the proceeds from PPP, or fraud in the forgiveness process. Here are some of the stories you might have heard:

  1. Attainment violations: In March and April of 2020, there were news stories about big banks giving back PPP money because they shouldn’t have gotten it in the first place. 
  2. Misuse of PPP funds: There was a story about a pastor who made up fake employees, fraudulently applied for PPP loans, and then bought 30 luxury cars and a house in another state with those funds.  
  3. Fraud in the forgiveness process: A mayor in Alabama has begun to cross-reference registered businesses with the PPP list in order to notify the SBA when those businesses attempt to apply for forgiveness.

Also, the justice department released a press briefing about an indictment of close to 500 different defendants in a coordinated ring of conspiracy. This fraud claimed over half a billion dollars of federal money.

My goal in addressing PPP loan fraud is to alleviate some of the concerns you might be having. For example, if you applied for PPP funds properly, used the money properly, and applied for forgiveness in the right way, then you don’t have anything to worry about.

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What are the guidelines for the PPP program?

The PPP was created to encourage and incentivize small businesses to keep their employees on payroll during the COVID-19 pandemic. It allowed qualifying small businesses to receive loans for payroll costs, interest on mortgages, rent, utilities, and other approved expenses. The PPP allows for the principal of the loan and any interest to be forgiven, if businesses used the money properly.

In short, legitimate businesses could apply for a loan to get help during the COVID-19 pandemic, then apply for forgiveness of those loans if they are spent properly.

Also, businesses were eligible for two PPP loans (also known as draws) under the updated PPP guidelines.

What is forgivable under PPP?

During the 8-24 weeks after receiving a PPP loan, if a small business maintained employee headcount and compensation levels, spent the loan on payroll costs and other eligible expenses, and spent at least 60% of the proceeds on payroll, then they are eligible for full loan forgiveness.

Self-employed sole proprietors who file a Schedule C with the IRS were able to pay themselves 100% of their PPP loans as owner’s compensation.

What can a PPP loan be used for?

Loans under the Paycheck Protection Program (PPP) can be used for “payroll costs including benefits, and may also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations,” according to the U.S. Small Business Administration.

PPP Loan Fraud

What is allowable under PPP?

Let’s make one thing very clear … no one should charge you money to apply for a PPP loan. Rather, SBA approved lenders and agents get paid a fee paid directly from the SBA.

One PPP scam involves people making up employees. This can result in hundreds of thousands of dollars suddenly showing up into someone’s account. I’ve heard stories of people getting help with their PPP application, and then “scammers” falsify documents and ask for a cut of the money.

This type of activity is illegal and exactly the type of PPP fraud the US Department of Justice is actively seeking.  There is even a PPP loan fraud hotline where people can report suspicious behavior by calling 866-720-5721.

What happens if I calculated my PPP loan wrong? What do I do if I received the wrong amount for my PPP loan?

If you have concerns about the amount of your PPP loan, here are the steps you can take before you apply for forgiveness.

1. Know your numbers:  Initially, when self-employed individuals, 1099 employees, and independent contractors were applying for PPP loans they were told to apply using their Schedule C Line 31 – which was Net Income.  Months later that changed so that people could apply using Gross Income, which is Line 7.

I created two free spreadsheets where you can plug in your own numbers and check to see if you received the correct amount of money for your PPP loan. If you have a PPP loan from 2020, or the beginning of 2021, then you probably applied using Line 31 Net Income. Click here for access to my PPP Net Income Loan Amount Calculator.

Now, if you applied using Line 7 Gross Income, I want you to know what your numbers are too. Click here for access to my PPP Gross Income Loan Amount Calculator.

The proper loan amount is then going to be the proper forgiveness amount. When it comes time to apply for forgiveness, I want you to know how much money you can expect to be forgiven.

2. Reach out to the lender: I know some lenders are difficult to deal with – maybe they’re non-responsive, you have to wait on hold forever, or maybe the person you speak with doesn’t know what they are talking about. 

However, in the case where you’re concerned that you received too much or too little of your PPP loan, it’s a very good idea to get in touch with the lender with a simple message like:

“Hello (Name of PPP Lender):

I am writing because I have concerns about my PPP loan, especially for the purposes of full forgiveness.

The SBA guidance is a bit confusing, so I am wondering the following:

1)  Was my PPP loan amount correct?

2)  If not, how do I request an increase in the case I received too little?  How do I give back any funds that were too much and will not be forgiven?

Sincerely,
(Your First and Last Name)
(Your PPP Loan Number)”

Lenders are there to work with you, so hopefully they can work something out. However, I do want to dampen your expectations because these are SBA approved loans. Sometimes the lender’s hands might be tied until the SBA can actually accept your forgiveness application, or your PPP converts to a 1% loan.

3. Use PPP funds to pay yourself: Now my final suggestion speaks to forgiveness. When you apply for the PPP money and the money gets deposited into your account, you can essentially use it as owner’s compensation. The most streamlined and simple way to use your PPP loan is to pay yourself. I wrote an in-depth post on how to properly pay yourself this PPP money, and best practices for setting up clean documentation.

That article should help you know what you are going to need when you apply for loan forgiveness. Also, the most updated forgiveness form that most self-employed individuals can use is the revised S-form. Here is a link to the PPP Loan Forgiveness Application Form, and I did a video walking you through how to fill out the PPP Loan Forgiveness Application for Self-Employed individuals.

You Also Might Like: How to Pay Yourself PPP Loan Self Employed

Is PPP loan still available? Is SBA accepting applications for PPP?

The SBA closed the PPP loan application process on May 31, 2021.  Previously, submitted applications will be processed until June 30, 2021.

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Related Content: PPP Loan Based on Gross Income for Self Employed

Key Takeaways

I’ve gotten a handful of comments about fear-mongering and trying to drum up business. I want to reiterate that I am an educator.  I make videos, podcasts, and blog articles to try to help people with their money.

When it comes to the Paycheck Protection Program, education is power. I encourage you to take the time to educate yourself and take advantage of the resources I’ve created. 

Remember, it’s best to reach out to your lender directly if you still have questions.

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As always, I’m Rich and until next time.

“RichSmithEDU.com has partnered with CardRatings for our coverage of credit card products. RichSmithEDU.com and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered. I am not a financial advisor. The information I share is for educational purposes only and shouldn’t be considered as certified financial or legal advice. It is imperative you conduct your own research. I am sharing my opinion only.”

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