PPP Loans, Fraud and Reborrowing 

Across Michigan, residents are being convicted of defrauding the state through the Paycheck Protection Program. PPP loans were announced and enacted by the federal government during the coronavirus pandemic to offer small business owners a much-needed financial boost. However, some business owners have taken advantage of the program and must now pay up.  


The Paycheck Protection Program is a loan created for small businesses to pay employees and take necessary steps to keep businesses afloat during the onslaught of the pandemic. Created by the U.S. Small Business Administration, more than $800 billion has been dispersed to small businesses across the country. For Michiganders, Oakland and Wayne counties had more loans than all other counties across the state.  


Small businesses in need were able to apply and were approved under some of the best terms — a forgivable loan if owners submitted documents outlining fund usage. However, some small business owners received funds and have been convicted of defrauding the United States government.  


“The SBA takes fraud seriously and all complaints are investigated and prosecuted to the full extent of the law. The complaints are managed by SBA’s Office of the Inspector General, which, as you will note, provides independent, objective oversight of SBA programs and the agency as a whole,” said Andrea Roebker, regional communications director for the SBA.  

Andrea Roebker, regional communications director for the U.S. Small Business Association.    

In May 2021, the U.S. Attorney General established the COVID-19 Fraud Enforcement Task Force to help combat and deter applicants from falsifying documents and unlawfully receiving PPP funds. In Michigan, several PPP fraud cases have been reported and filed, some have already faced convictions.  


Despite this, small businesses are still in need of assistance as they continue to combat the financial effects of the pandemic. Institutions like Huntington Bank remain committed to helping small business owners through one of the most troubling of times. 


“We haven’t seen a lot of fraud cases of PPP lending other than some of the big stuff. Like some of the big firms that got millions in the beginning and they weren’t supposed to get that,” said Christi Narayanan, president and CEO of the Opportunity Resource Fund, which provides loans including small business loans. “Clearly that hurts small businesses because they didn’t get what they should have.” 

Christi Narayanan, president and CEO of the Opportunity Resource Fund (photo credit The Federal Home Loan Bank of Indianapolis). 

Although funds are intended for business purposes, some applicants may have used some of the funds for personal use throughout the pandemic. In this case, recipients of the funds will be forced to pay back the loan, but it will not count as fraud.  


“We do have two borrowers who did take out PPP loans and didn’t use it for the intended purpose,” says Narayanan. “What happens there is the government does not consider that fraud. They just say ‘okay, well you have to pay it back,’ it’s no longer forgiven.”  


For those who have to pay any misused funds, payments must be made to the lending institution. From there, the institution must repay the federal government. Recipients will have to pay an additional percentage on the funds.  


“That means those funds would be returned to Opp Fund as the lender and then we would have to pay it back on your behalf,” says Narayanan. “You would have to pay the funds back to the originating PPP lender, you would have five years to pay it back at one percent interest and we would send the money back to the SBA.”   


Small business owners who may need to reborrow in the future may not face any penalties as long as payments are not defaulted on. Defaulted payments could result in a negative effect on the borrower’s credit.  


“It shouldn’t impact them at all [with the ability to reborrow]. That’s the crazy thing. If you don’t pay it back, there’s a big black mark on your credit and we will have to report that to the credit bureaus on that particular borrower. As long as you pay the loan back or use it for what it was intended for and have that portion forgiven, it should not impact your ability to borrow in the future,” says Narayanan.  


Businesses who have taken advantage of the Paycheck Protection Program may already start seeing loan forgiveness measures in place. Recently, the U.S Small Business Administration announced it had reached its one millionth PPP loan forgiveness application for those who received $150,000 and less.  


“We are committed to delivering against the promise of forgiveness for our eligible PPP borrowers. Our innovative direct forgiveness portal is helping our PPP borrowers get back to doing what they do best, creating jobs and powering our nation’s economy,” says SBA Administrator Isabella Casillas Guzman. “With over one million application submissions, our direct forgiveness portal has already given so many of our smallest businesses the ability to apply for forgiveness quickly and smoothly and move forward with their rebuilding and recovery. I encourage those eligible PPP borrowers who have yet to apply to visit SBA.gov or contact their lender today.”   

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