Finances and Taxes

3 Things You Can Do to Help Avoid PPP Loan Fraud

Gusto Editors  
3 Ways to Avoid Paycheck Protection Program (PPP) Loan Fraud - Gusto

We’ve covered concerns small business owners have before applying for the Paycheck Protection Program (PPP), but with slow-to-come guidance about how and when to use the funds, even some employers who’ve gotten their PPP loans have questions about using them.

Though some parts of the application and forgiveness processes have been clarified, others remain unclear. There are open questions about how long borrowers can hold onto their PPP funds if they’re not looking for loan forgiveness—and if that means businesses can use the money for purposes other than those outlined in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. More recently, there’s been confusion about whether businesses should return the funds to avoid fraud charges—and what fraud even means for businesses with PPP loans.

The Paycheck Protection Program was quickly executed, and sometimes it feels as though the rules are still being written (spoiler: they are). But what’s certain is that this loan program was created to benefit small businesses and their employees who have been impacted by the COVID-19 pandemic and ensuing downturn.

Here are three things you can do to ensure you procure PPP funding without putting your business at risk of fraud.

1. Certify, in good faith, that you need your PPP loan.

On April 23, the Treasury Department issued additional guidance on who exactly qualifies for PPP loans. Responding to criticism that PPP funding was being awarded to businesses with access to capital outside of the PPP, like Shake Shack and the Los Angeles Lakers, the new rule discourages larger companies with access to other sources of liquidity from monopolizing the limited pool of funding.

Additionally, the Treasury emphasized the requirement that PPP borrowers certify in good faith that the loan is “necessary to support the ongoing operations of the applicant.” The guidance particularly calls out that “companies with large valuations and access to capital markets” are “unlikely” to meet that requirement.

The Justice Department has begun investigating companies to ensure they did not apply to the program with misleading information, and Treasury Secretary Steven Mnuchin has recently stated the Small Business Administration (SBA) will review all PPP loans of more than $2 million for any criminal liability.

Borrowers who applied for a PPP loan before this guidance was issued and don’t meet this requirement have until May 18, 2020 to repay their funds. This all sounds pretty nerve-wrecking, but it’s important to remember that if you’re a small business impacted by COVID-19, it’s unlikely that you need to return your funds under this guidance. If your loan amount was under $2 million, you meet the required certification.

What you can do:

  • Carefully review the Treasury’s guidance and program eligibility rules. Double-check affiliation rules and qualifications based on your size, industry, and entity type.
  • Take a look at your current business activity and other sources of liquidity, and ask yourself if they are sufficient to keep your business going without a PPP loan.
  • While the CARES Act waives the requirement that applicants are unable to get credit elsewhere, if you do apply for other loans, have documentation handy to show you considered other sources.

2. Make sure every business only receives one loan.

Many businesses have applied for a PPP loan with multiple lenders to increase chances of receiving funding. However, you are required to certify in your application that you have not and will not receive another PPP loan. Thus, you must be careful to only accept ONE loan corresponding to the tax information you submitted (either your employer identification number, Social Security number, or your tax ID).

Applying for PPP loans for multiple affiliated businesses can also be complicated. The rules vary based on total number of employees, industry, and other factors.

What you can do:

  • If you have already submitted more than one PPP loan application, make sure you only sign loan documentation for one of those loans. 
  • If you somehow ended up with two PPP loans for your single business with the same tax ID number, consider notifying your lender and repaying any additional PPP loans.
  • For those with multiple affiliated businesses, it’s unclear whether getting multiple loans for multiple businesses is acceptable under the PPP. So if you have already received a PPP loan for one of your businesses, try looking for other sources of relief for additional business needs. Our Small Business Relief Finder can help.

3. Use your loan for working capital.

Many PPP applicants have questions on how flexibly they can use PPP funds outside of payroll costs and other eligible costs specified in the CARES Act. While the CARES Act stated which expenses are eligible for forgiveness, it was less clear about what expenses could be covered if a small business is not seeking forgiveness.

John Asbury, the chief executive of Atlantic Union Bankshares in Virginia, told the New York Times, “As long as they’re using the funding for the operating expenses of the business, our interpretation—and we think it’s clear—is yes, you can use it as effectively a working capital loan.”

Note that lenders may differ in their approach to permissible use, and you should check with your individual lender to understand what you may use your PPP funds for outside of payroll and other eligible costs. 

What you can do:

  • Check with your lender on any other permissible uses for your PPP funds. For example, some lenders may determine that a use is not eligible for forgiveness but is still eligible for use under the PPP.
  • If you need the PPP money for business costs outside of payroll and other approved expenses, make sure you are using the funds as working capital, or in other words, to support the day-to-day operations of your business.
  • Still keep track of everything you spend it on, even if you may not be eligible for loan forgiveness.
  • Spend what you can, and either return what you don’t spend (there’s no prepayment penalty) or make a plan to pay back the low-interest loan within two years. Keep in mind that the 1% interest accrues on a daily basis, even while payments are deferred the first six months of the loan.

If you have a PPP loan and still have concerns about spending without the risk of fraud, we’ve broken down step-by-step how to spend your PPP loan not only to stay compliant with all issued guidance, but also to get 100% of your loan forgiven.

Our COVID-19 Small Business Resource Hub has legislation updates, advice, and support.

Updated: May 20, 2020

Gusto Editors
Gusto Editors


  • Carolyn Case

    If an owner loaned us money to pay our employees while we were waiting for our PPP to be approved, we have now received the PPP money, can I repay the owner back with the PPP funds an it be considered forgiven?

  • Steven Johnson

    I was approved for a PPP loan through Cross River Bank and signed closing docs on April 21st. I still have not received the funds and Cross River Bank will not return my calls or email. Any suggestions? Can I apply with another bank even though I’ve signed closing docs?

    • Gusto Editors

      Hi Steven — if you provide us your company name and the email tied to your Gusto account, our team can assist!

    • Charlie Branson

      If you bring back an employee who made more than $135K but offer only 67K, a 50% reduction, will it be forgiven?

      • Gusto Editors

        Hi Charlie — to qualify for loan forgiveness, you cannot reduce the average wage of any employee by more than 25%. However, employees who earned an annual salary of $100,000 cash compensation or more (that breaks down to $8,333.33 per month) in 2019 are exempt from this rule.

  • Joe Cooper

    Is loan forgiveness based on spending 75% of the total loan amount on payroll costs or 75% of the loan amount spent in the 8 week period? (With the balance of the loan paid back or rolled into a loan with the 1% interest).

    • Gusto Editors

      Hi Joe — at least 75% of the total loan amount should be spent on payroll costs over the 8-week period.

  • K. H.

    First, Thank you for doing this. Your insights help a lot!

    Second, I ran the Gusto PPP forgiveness report and i’m at 64% for Payroll use. Can I provide an early Off Cycle Payroll to get the value over 75% or do I need to hire a new employee?

    • Gusto Editors

      Hi K.H. — we recommend you touch base with your CPA for more specific guidance on your situation!


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