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Dangers/Consequences of Misusing Government Small Business Loans From COVID Relief

As early as March of 2020, states begun to shut down private businesses in response to COVID 19. This effort was undertaken with the idea that doing so would save lives.

Unfortunately, lives that were saved have come at the cost of millions of people’s livelihoods.

To offset some of the financial burden that forced closures on businesses, the federal government put a series of programs in place that extend government small business loans with favorable terms to those affected. One of the most popular of these loan programs is the PPP (paycheck protection program).

With the offer of low-interest, forgivable loans though comes fraud. Plenty of businesses have taken it upon themselves to abuse loan terms to pad their pockets rather than leverage them for their intended use.

Doing that can and has carried serious consequences. Here are a few of the repercussions of loan abuse.

You Run the Risk of Being Fined

Any time you commit fraud, there are a range of punishments you might face. One of the repercussions that skirting the intended use of government small business loans carries is receiving a fine.

Fines can range from something relatively modest to exorbitant figures. These fines may be determined via an objective scale but are more likely to be imposed subjectively by an authority figure per the extent of the abuse that took place.

Jail Time Could Be Issued

While having to pay thousands to settle a complaint related to your abuse of a COVID relief program may sound bad, that could be the least of your problems. As with all felony offenses, you could face jail time in addition to a cash fine.

Jail time for felonies, much like fines, exists on a scale that will usually be weighed by a judge. Judges could give offenders anywhere from a couple of years to decades in prison depending on the extent to which the abuse took place.

Serious PR Complications

Nobody shops with a company that has the reputation of being dishonest and abusive towards programs that are meant to help people. So then, it stands to reason that if you were to blatantly misuse a COVID relief loan, word would get out and you’d effectively cut your consumer base off at the knees.

Recovering from theft of public funds charges would be a feat that would almost certainly prove to be insurmountable, particularly in today’s cancel culture age.

Quick Assistance Could Be Curbed in the Future

One of the silver-linings that have come out of COVID is that the United States got to see just how quickly the government could react when everybody worked together. After assessing how the quickness of relief programs led to fraud and overcompensation in many instances, you can be sure that the government will be slower to act in the future.

Look no further than the time it took to pass the first national relief bill and the second. The second bill is gridlocked in Congress, mostly because of disagreements regarding the level of support that should be given after we’ve seen misuse of funds in many regards.

Aid Pools Will Evaporate Robbing Businesses in Need

When it comes to government-sponsored loans, the loan pool is finite. That means that once the pool is overdrawn, businesses will no longer have a way to continue surviving their closures.

By pulling loan dollars and abusing them, you’re robbing another company with good intentions of the ability to support themselves and the people that rely on their ability to maintain cash flow.

More People Will Lose Their Jobs

It’s no secret that COVID has created conditions where the United States is seeing the worst rates of unemployment it has seen decades. Abuse of government small business loans exacerbates these already poor conditions.

When companies can’t pull loans to protect their employee paychecks, they have to let them go. That may rob someone of their mortgage, food, and other life necessities.

For every loan dollar you abuse, you’re not just hurting the treasury. You’re hurting your neighbors.

Punitive Legislation Could Arise

To deter abuse of government loans in the future, talks are taking place to pass punitive legislation regarding relief abuse. This legislation will make punishments pertaining to abuse more quick and severe.

If abuse had not taken place to begin with, congressional leaders would be able to spend their time focusing on helping people in a time of crisis as opposed to punishing those that are taking advantage of a bad environment.

You’ll Forego Special Loan Benefits

Perhaps your abuse of a government loan isn’t as insidious or as intentional as others. Maybe you decided to siphon pieces of your loan into ancillary aspects of your business as opposed to areas they might benefit your company the most, per the loan’s terms.

For example, if you mostly push a PPP loan into paying your building lease as oppose to paying your employees, you could forfeit special terms within the loan that enable debt forgiveness.

That will end up costing you in the long run.

Don’t Abuse Government Small Business Loans

There are a slew of moral, legal, and financial reasons to not abuse government small business loans. We hope that the breakdown of consequences we’ve shared made that clear and deters you from becoming too opportunistic at a time when many are struggling.

If you’d like more advice on all things money, consider reading through new content we have posted here on our blog.


Jesse Fin

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