How to Correct Errors on Your PPP Loan Application

The Paycheck Protection Program (PPP) was a lifeline for millions of American small businesses during the darkest days of the pandemic. It provided crucial funds to keep employees on payroll and doors open. However, the rapid rollout and constantly evolving guidance from the Small Business Administration (SBA) and Treasury Department created a perfect storm for errors. Many applicants, often working in haste with their lenders, made mistakes on their applications. These errors range from simple typos in an Employer Identification Number (EIN) to more complex miscalculations in payroll figures.

If you’ve discovered an error on your PPP loan application—whether for your First Draw or Second Draw loan—don’t panic. You are not alone. Correcting these mistakes is not only possible but often necessary to ensure your loan is properly documented, especially if you intend to apply for forgiveness. The process can be daunting, but this guide will walk you through the essential steps to get it right.

Why Correcting Your PPP Application is Crucial

Before diving into the "how," it's important to understand the "why." An uncorrected error on your PPP application can have significant consequences.

Potential Risks of Uncorrected Errors

• Loan Forgiveness Denial: The entire purpose of the PPP is to have the loan forgiven. If the information on your forgiveness application doesn't match your original loan application, it could raise red flags and lead to a denial or delay of forgiveness. For example, if you overstated your payroll costs, your forgiveness amount might be reduced, leaving you with a debt you didn't expect.
• SBA Audit and Review: The SBA has announced it will review all PPP loans over $2 million, plus a random sample of smaller loans. Even if your loan is smaller, it could be subject to review. Inconsistencies in your application data could trigger a more in-depth audit.
• Legal and Financial Liability: In the most severe cases, if an error is deemed to be a misrepresentation of facts made with fraudulent intent, it could lead to serious legal repercussions, including charges of wire fraud or bank fraud. The SBA has clearly stated that borrowers are responsible for the accuracy of their applications.
• Problems with Future Financing: An unresolved issue with a federal loan program like the PPP could complicate your ability to secure other loans or financing from banks in the future.

The Silver Lining: Acting in Good Faith

The key thing to remember is that the government distinguished between honest mistakes and deliberate fraud. If you acted in good faith and your error was unintentional, proactively correcting it demonstrates your commitment to compliance. The SBA's guidance often includes provisions for borrowers to rectify mistakes without penalty.

Common Types of PPP Application Errors

Errors can be broadly categorized. Identifying your specific issue is the first step toward resolving it.

1. Administrative and Clerical Errors

These are simple mistakes that don't affect the loan calculation. * Incorrect Business Name or Address: A misspelling or using a DBA (Doing Business As) name instead of the legal entity name on file with the IRS. * Wrong EIN or SSN: Transposing numbers in your Employer Identification Number or Social Security Number. * Bank Account Information: Errors in routing or account numbers (though these are typically caught during the funding process).

2. Calculation Errors

These are more serious as they directly impact the loan amount you qualified for. * Payroll Cost Miscalculations: This is the most common and critical error. It includes: * Incorrect Time Period: Using the wrong reference period for calculating average monthly payroll (e.g., using 2020 instead of 2019). * Omission of Eligible Costs: Forgetting to include state and local taxes assessed on employee compensation, employer contributions to employee health insurance, or retirement plans. * Inclusion of Ineligible Costs: Accidentally including compensation for any employee above $100,000 (prorated for the covered period), or including federal taxes. * Misclassification of Employees: Incorrectly classifying workers as employees when they are independent contractors (or vice-versa). Only employee payroll costs were eligible. * NAICS Code Errors: Selecting an incorrect industry code.

3. Eligibility and Certification Errors

These are the most severe, as they relate to the required good-faith certifications you made on the application. * Economic Necessity: The certification that "current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." Some businesses that were largely unaffected may have later questioned this certification. * Other Sources of Liquidity: While not an outright disqualifier, the application asked borrowers to take into account their current business activity and ability to access other sources of liquidity.

A Step-by-Step Guide to Correcting Errors

The process for correction depends heavily on the stage of your loan: before disbursement, after disbursement but before forgiveness, or during/after the forgiveness application.

Step 1: Identify the Exact Error and Gather Documentation

Do not contact anyone until you have a complete understanding of the mistake. Gather all supporting documents: * Your original PPP application (SBA Form 2483 or 2483-SD). * Your loan agreement and loan note. * All payroll reports, tax filings (IRS Forms 941, 940, state quarterly wage reports), and documentation for health insurance and retirement contributions. * Any communication from your lender.

Step 2: Contact Your Lender Immediately

Your lender is your primary point of contact for any and all PPP corrections. The SBA does not handle corrections directly with borrowers. You must work through the bank or financial institution that originated your loan. * Be Proactive: Don’t wait for them to find the error. Reach out as soon as you discover it. * Be Specific: Clearly explain the error and what the correct information should be. For example, "On our application, we listed our average monthly payroll as $50,000, but after review, the correct figure is $48,500 based on our 2019 Form 941." * Provide Documentation: Submit all the gathered documentation that proves what the correct number or information should have been.

Step 3: Work with Your Lender on the Resolution

The lender's action will depend on the error type and the SBA's current guidance. * For Minor Clerical Errors: The lender may be able to correct these easily in their system and resubmit to the SBA. * For Calculation Errors that Inflated the Loan Amount: This is a more complex scenario. If you received more money than you were entitled to, you will likely need to repay the excess amount to the lender immediately. The lender can then guide you on how this affects your forgiveness application for the correct amount. * For Calculation Errors that Deflated the Loan Amount: Unfortunately, the window to apply for a PPP loan has long been closed. It is generally not possible to increase a loan amount that was initially understated after the loan has been disbursed. * For Eligibility Concerns: If you believe you may not have met the eligibility requirements in good faith, you should consult with a lawyer or CPA specializing in PPP loans. The course of action may involve canceling the loan and repaying it in full by the maturity date to avoid potential liability.

Step 4: Address the Error on Your Forgiveness Application

Your forgiveness application (SBA Form 3508, 3508EZ, or 3508S) is your final opportunity to correct the record. The forms include a line item where you must list the loan amount you were entitled to, not necessarily the amount you received. If these numbers differ, you must explain why. * Be Transparent: In the appropriate field, clearly state that an error was discovered on the original application and provide the accurate calculation. * Re-submit Supporting Docs: Include the correct payroll documentation that supports the revised, accurate number. * You May Have to Repay: If you received an overpayment, you will have to repay that amount before or during the forgiveness process. The forgiveness will only be granted for the eligible amount.

Special Considerations in a Complex World

The global landscape continues to present challenges. Supply chain disruptions, inflation, and the "great resignation" have put continued strain on small businesses. In this context, the accuracy of your PPP loan is more important than ever. A sudden need to repay a portion of a loan you thought would be forgiven could be devastating to a business already operating on thin margins. Furthermore, geopolitical events and shifting federal priorities mean that compliance and transparency are paramount. Proactively fixing errors protects your business from future uncertainty and allows you to move forward with a clean slate, focused on recovery and growth in a volatile economic environment. Taking these corrective steps is not just about fixing a form; it's about ensuring the long-term stability and integrity of your business.