Written by Attorney Kensley Barrett
March 11th, 2025

A recent example highlights the government's increasing scrutiny of PPP loan compliance. MacDermid Incorporated, based in Waterbury, CT, paid over $2 million to settle False Claims Act allegations regarding its acquisition of Coventya Inc. The issue stemmed from Coventya falsely certifying its eligibility for a PPP loan. This case serves as a stark reminder that even businesses that did their best to navigate the PPP may still find themselves under government scrutiny.

Background:

During the early days of the pandemic, the PPP became a vital lifeline for small businesses, helping them retain employees and cover critical expenses amid uncertainty. However, the rush to secure funding, combined with rapidly changing guidelines and mixed eligibility advice, led some businesses to miss nuances in the program's complex rules.

As the government intensifies its enforcement efforts, now is a good time to revisit PPP loan eligibility and take steps to safeguard your business from any potential legal or reputational fallout.

Breaking Down the Basics of PPP Loan Eligibility:

To ensure you're on solid ground, let's quickly review the basic eligibility requirements for PPP loan applicants:

1. Who Could Apply?: Small businesses, nonprofits, sole proprietors, and self-employed individuals were eligible.
2. When Did Your Business Need to Be Operational?: Your business needed to have been operational as of February 15, 2020.
3. Employee Count: Generally, businesses with 500 or fewer employees were eligible. This included employees across affiliated businesses, not just the applicant itself.
4. Economic Need: Applicants had to certify that “current economic uncertainty” made the loan necessary for ongoing operations.
5. How Could Funds Be Used?: The loans were mainly for payroll costs but could also cover mortgage interest, rent, and utilities if those expenses existed before February 15, 2020.

Why the Government Is Focusing on Compliance:

Between April 2020 and May 2021, the government disbursed nearly $800 billion in PPP loans. While a large portion of these loans were ultimately forgiven, the government is increasingly scrutinizing the program for noncompliance—whether intentional or not. The U.S. Department of Justice (DOJ) is now sending out Civil Investigative Demand (CID) letters to businesses it suspects may have violated PPP guidelines. These letters often ask for businesses to preserve documentation like loan applications, SBA communications, and records showing how the funds were used.

Despite good intentions, the complexities of the PPP have led to unintentional errors in some applications. This is why the government is now focusing on smaller-scale noncompliance cases.

How to Protect Your Business:

If you're concerned about the increased scrutiny of PPP loans, here are some proactive steps to minimize potential risks:

1. Keep Your Documentation Organized: Make sure you have all relevant documents related to your PPP loan, including:
   • Loan applications and financial records.
   • Communications with the SBA and other agencies.
   • Internal discussions about the loan's necessity and eligibility.
   • Records showing how the funds were spent.
2. Reach Out to the Marin, Barrett, and Murphy Law Firm: Consulting our firm can help ensure your documentation is in order and guide you through the next steps.
3. Double-Check Loan Use: Review how you spent the loan funds, particularly regarding payroll and other eligible expenses. If there are any discrepancies, address them proactively.
4. Understand the Risks: Keep in mind that violations could lead to civil and criminal penalties under the False Claims Act (FCA). While this may sound daunting, taking the right steps now can help reduce the risk of penalties.

Conclusion:

While the thought of government scrutiny may feel overwhelming, it's important to remember you're not alone. Many businesses face similar challenges, and by staying organized and transparent, you can reduce the risks of facing an investigation. If you've received a letter or are worried about potential exposure, seeking legal advice is a good step. The more prepared you are, the better equipped you'll be to navigate the process and protect your business.