What Happens If You Miscalculate Your PPP Loan?

During the epidemic, EIDL and PPP loans rescued numerous small enterprises. Learn what to do if you make an error on your loan application.

What you’ll discover:

Will I go to prison if I make a mistake on my PPP or EIDL application?
What happens if my PPP loan is forgiven because of an error on the application form?
How can I fix an error that I noticed later?
What should I do if I requested an excessive or insufficient amount of money for my PPP loan or EIDL?

The Small Business Administration (SBA) launched a variety of economic assistance measures during the epidemic. If your company is one of the millions that have filed for a Paycheck Protection Program (PPP) loan or an Economic Injury Disaster Loan (EIDL), you’ve definitely noticed that the regulations are extremely difficult. Sadly, errors on these loan applications may have major financial or legal ramifications.

Will I go to prison if I make a mistake on my PPP or EIDL application?

Borrowers carry the final responsibility for the correctness of their loan application, which they testify to and confirm under penalty of perjury. Lending applications contain several procedures and computations, so errors are unavoidable.

If a borrower receives more money than they were entitled for due to a mistake made in good faith on a PPP loan or EIDL application (called an excess loan amount error), the borrower is unlikely to face prison time. A mistake is committed in good faith if the borrower or lender does not make a knowing untruth. Yet, there might still be repercussions, such as:

If the borrower was not qualified for the loan amount, the SBA denied loan forgiveness.
The SBA has denied loan forgiveness for the extra loan amount.
Borrowers repaying the extra loan amount in accordance with the loan note’s stipulations.

If a borrower fabricated facts on the loan application, a more severe situation, with criminal ramifications, may occur. Knowingly providing false information on a loan application might result in serious criminal charges. If convicted, a borrower faces a $5 million fine and up to 30 years in jail. A minor, honest error on an application is unlikely to put a borrower in prison as long as they did not willfully mislead facts on their PPP loan or EIDL application.

What happens if my PPP loan is forgiven because of an error on the application form?

When it comes to blunders, the PPP debt forgiveness procedure may be harsh. In one case, a missed comma cost a small company owner $12,000 in debt forgiveness. It is the obligation of the borrower to submit an accurate assessment of the loan forgiveness amount as well as any supporting paperwork. If a disparity is discovered by the lender, it is the lender’s obligation to engage with the borrower to resolve it.

But, the Treasury Department and the SBA have not offered guidelines to borrowers on how to remedy errors on their applications. A borrower may request that their lender submit a paperwork to amend the error, but no additional advice on how to correct errors has been offered.

How can I fix an error that I noticed later?

A borrower who achieved PPP loan forgiveness may realize that they made a mistake on their application, which led in their debt being forgiven even if the loan was not eligible for full or partial forgiveness. If these estimates or representations were inaccurate, the borrower would be required to repay any extra unforgiven PPP loan amount plus interest, which is the outstanding balance accumulating interest at 1% for the remaining two to five-year term. Before determining whether to self-report the error to the SBA or wait for the government to initiate enforcement action against them, a borrower should consult with a lawyer.

What should I do if I requested an excessive or insufficient amount of money for my PPP loan or EIDL?

“That depends,” is the response. If the amount received for a PPP loan is either little or too high, the borrower should contact their lender immediately. If the loan is too small, a borrower’s choices with the SBA are relatively restricted, and only select borrowers may be qualified to reapply for financing. There isn’t much more a borrower can do to get extra money after a loan has been authorized by the SBA. But, the regulations may change in the future, so it’s always a good idea to contact a lawyer if you find yourself in a bind.

If a small company owner does not use all of the loan funds allocated to them, they might contact the lender to see what further possibilities are available. A borrower may be eligible for an increase in funds when reapplying for a PPP loan if they:

They paid down their First Draw PPP loan in full by December 27, 2020.
Part of a First Draw PPP loan was returned before December 27, 2020.
They did not take the entire amount of a First Draw PPP loan granted on or before August 8, 2020.

If a borrower satisfies specific conditions, they may be allowed to raise their loan amount provided they have not previously gotten forgiveness on their initial PPP loan and the amount requested does not exceed the maximum PPP loan amount permitted in 2020.

If a PPP loan borrower need more funds, they may need to consider alternative options since the application time for a second PPP loan expired on May 31, 2021.

If a borrower got an excessive amount of money, the choices for resolving the matter are limited. Borrowers have until May 14, 2021, to repay the money in full to the SBA without penalty. Borrowers do not have the option of returning a part of their loan. If a borrower is worried about the amount of their debt, they should contact with their lender to learn about their choices.

Once a borrower meets the eligibility conditions for an EIDL, they may resubmit their application to request an increase in funds up to the amount qualified for or the $2,000,000 maximum, whichever is lower. The maximum amount initially allowed less the amount actually disbursed is the amount a borrower may be entitled for. For example, if a borrower was authorized for $500,000 but only received $400,000, the maximum second disbursement would be $100,000. Borrowers should not, however, reapply for another loan. A new application submitted by a current EIDL borrower may be flagged as fraudulent. Borrowers may be eligible for a second EIDL if they live in a disaster-affected area and have suffered damage to their home, personal belongings, or business.