After Treasury Secretary Mnuchin initially mentioned the issue in an interview with CNBC[1] on April 28, the Treasury Department posted a statement by the Treasury Secretary and Small Business Administration (SBA) Administrator Jovita Carranza on a process for the review of Payroll Protection Program (PPP) loans.[2]

The CNBC article quoted the Treasury Secretary as stating that all PPP loans in excess of $2 million would be subjected to a full review of the loan by the SBA.  Later in the day, the Wall Street Journal published a story on its website citing their interview with the Treasury Secretary where he added that smaller loans will be spot checked by the agency as well.[3]

The short statement formally confirms what the stories reported, as well as giving some minor additional details.

The statement indicates that many companies are taking advantage of the May 7 date to repay the loan without having to justify that the loan met the “necessary” test required as part of the certification, though the statement does not give any specific numbers, only a claiming there are a “large number” of such companies:

We have noted the large number of companies that have appropriately reevaluated their need for PPP loans and promptly repaid loan funds in response to SBA guidance reminding all borrowers of an important certification required to obtain a PPP loan.

Presumably, this is a not terribly subtle suggestion that those who are troubled by the remainder of the statement should consider paying back the loan by May 7, as the statement then goes on to confirm the review process outlined in the articles.

To further ensure PPP loans are limited to eligible borrowers, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.  Regulatory guidance implementing this procedure will be forthcoming.

It's not clear if borrowers will have a chance to see that regulatory guidance before the May 7 repayment deadline to avoid scrutiny.

Also, it’s important to note this merely says the loans will be reviewed when an application for forgiveness is submitted. The guidance may clarify whether a borrower who chooses to not apply for forgiveness but just accepts a 1% loan with a two year payment term will not be subjected to the scrutiny.

[1] Lauren Hirsch, “Small business loans above $2 million will get full audit to make sure they’re valid, Mnuchin says,” CNBC website, April 28, 2020, https://www.cnbc.com/2020/04/28/small-business-loans-above-2-million-will-get-full-audit-to-make-sure-theyre-valid-mnuchin-says.html, retrieved April 29, 2020

[2] “Joint Statement by Secretary Steven T. Mnuchin and Administrator Jovita Carranza on the Review Procedure for Paycheck Protection Program Loans,” U.S. Department of the Treasury website, April 28, 2020, https://home.treasury.gov/news/press-releases/sm991, retrieved April 29, 2020

[3] Bob Davis and Kate Davidson, “U.S. Audits of Small-Business Loans Face Daunting Challenges,”Wall Street Journal website, April 28, 2020, https://www.wsj.com/articles/sba-to-face-big-challenges-ensuring-coronavirus-loans-arent-misspent-11588094140?mod=hp_lead_pos6, retrieved April 29, 2020