Changes to PPP Loan and Covid-19 EIDL Obligations

Changes to PPP Loan and Covid-19 EIDL Obligations

These May Be of Importance to Business Owners Who Used These Programs

On August 5, 2022, President Joseph R. Biden signed into law H.R. 7334, the “COVID-19 EIDL Fraud Statute of Limitations Act of 2022” and the H.R. 7352, the “PPP and Bank Fraud Enforcement Harmonization Act of 2022” which, in general, extend the statute of limitations  for civil and criminal enforcement actions for fraud to ten (10) years under: (1) the Small Business Administration’s (“SBA”) COVID-19 Economic Injury Disaster Loan programs; and (2) the SBA’s Paycheck Protection Program (“PPP”), respectively.  These bills were both passed by Congress with bipartisan support and harmonize the time period law enforcement officials have to prosecute wrong doers.

It is estimated that the total amount of PPP loans, more than $800 billion, represent thirty (30) years’ worth of the governmental agency’s lending.  You may recall that delivery of such funds was rather quick, given the unprecedented circumstances the pandemic imposed.  As such, and in order to distribute funds in a faster manner, the SBA recruited new types of lenders, such as financial technology (“FinTech”) companies (which are not considered banks).  However, the SBA apparently did not have enough controls in place at the time in order to prevent fraud.  As a result, it has already been identified that approximately 70,935 loans could potentially be fraudulent.  It should be noted that, before the legislation was passed, Fintech-originated PPP fraud had a statute of limitations of five (5) years.  Now, regardless of the type of institution, prosecutors will have ten (10) years.

In addition, per a recent study published by the University of Texas-Austin, nine (9) out of ten (10) of PPP lenders with suspicious loans are in fact Fintech companies.

The main goal and objective of the new laws is to improve accountability and ensure prosecutors have ten (10) years to bring suits for fraud charges, regardless of the type of lender.  However, there will not be a clear picture of the amount of fraud cases until the end of fiscal year 2024, when a substantial portion of such loans will become due.

If you are a small business owner, sought and obtained relief funding, you should conduct appropriate due diligence in order to examine corporate records and review whether such funds were properly received, used and forgiven, as applicable.

Please note that this blog should be read for informational purposes only.  If you have any questions or require additional information, please contact our office.

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