What Does It Mean When My PPP Loan Is Flagged for Review?
So your probably finding out from your lender, from an SBA notice, or through the PPP loan portal that your loan has been “flagged for review” or has a “hold code” attached to it, and your wondering whether this means your under investigation for fraud, whether your forgiveness is going to be denied, or whether this is just routine processing. The answer depends on why your loan was flagged, what specific hold code or error message is attached to it, and whether the flag was generated by automated fraud detection systems or by manual review from SBA investigators who identified specific concerns about your application or use of funds.
A flagged PPP loan doesn’t automatically mean your accused of fraud, but it does mean the SBA has identified something about your loan that triggered there screening systems and requires additional review before forgiveness can be processed or before the loan can be fully disbursed. The flags can range from minor technical issues—like duplicate applications that need to be reconciled or missing data fields that need clarification—to serious fraud indicators like your business not being in operation when you applied, significant discrepancies between your application and tax records, or use of loan proceeds for prohibited purposes.
What happens next depends entirely on the nature of the flag and how serious the underlying issue is. Some flags can be resolved quickly by your lender providing additional documentation or certifications to the SBA, while other flags trigger comprehensive manual reviews by SBA staff, referrals to the Office of Inspector General for investigation, or even criminal referrals to the Department of Justice if the SBA believes your loan involves fraud. The key is understanding what type of flag you have, what the SBA is concerned about, and how to respond in a way that resolves legitimate issues without creating additional exposure.
We represent business owners dealing with flagged PPP loans, SBA audits and reviews, and fraud investigations, and we know that how you handle a flagged loan in the early stages can determine whether it gets resolved administratively or whether it escalates into a full-blown civil or criminal case. The worst thing you can do is ignore the flag hoping it will go away, or try to “fix” problems by altering documents or making false statements to your lender or the SBA. Both approaches will make your situation exponentially worse and can convert what might have been a resolvable compliance issue into federal fraud charges carrying years in prison.
What Are Hold Codes and How Do They Work?
Hold codes are identifiers that the SBA places on PPP loans in there computer system to indicate that a potential issue has been detected that needs to be resolved before the loan can be processed, disbursed, or forgiven. When a hold code is attached to your loan, it essentially puts the loan in “research status,” meaning no further action can be taken—no funds can be disbursed, no forgiveness can be granted—until the issue identified by the hold code is addressed and cleared.
The SBA uses different hold codes for different types of issues, and understanding which hold code is attached to your loan tells you something about what the concern is and how serious the problem might be. Some hold codes are routine and can be cleared by the lender providing additional certifications or documentation, while others indicate serious fraud concerns that require investigation and can’t be resolved without substantive review of your eligibility and use of funds.
Hold codes can be triggered either automatically by the SBA’s fraud detection systems or manually by SBA staff who identify concerns during review of loan applications or forgiveness requests. The automated screening process uses sophisticated data analytics to compare PPP loan data against other government databases—including IRS tax records, Social Security Administration files, state business registration databases, and previous SBA loan records—to identify anomalies, inconsistencies, or fraud indicators that warrant further review.
For example, if you claimed 50 employees on your PPP application but your IRS Form 941 payroll tax filings show only 10 employees for the relevant quarter, the automated system will flag that discrepancy and attach a hold code requiring explanation. Similarly, if multiple PPP loans were submitted using the same bank account, the same IP address, or other indicators of potential duplicate applications or fraud schemes, hold codes will be automatically triggered for manual review.
Manual hold codes are applied when SBA staff reviewing applications or forgiveness requests identify specific concerns that don’t necessarily trigger the automated filters but that raise questions about eligibility or compliance. This might include situations where your loan application and forgiveness application tell inconsistent stories about your business operations, where your use of funds documentation doesn’t support the amounts your claiming for forgiveness, or where there’s evidence that your business wasn’t actually operating when you certified it was.
What Is Hold Code 70?
Hold Code 70 is one of the most serious hold codes the SBA uses for PPP loans, and if your loan has been assigned Hold Code 70, you should assume your facing substantial scrutiny and potential fraud investigation. Hold Code 70 is specifically used to flag forgiven PPP loans for which the SBA subsequently suspects the borrower may be ineligible for the loan or for loan forgiveness, often based on information discovered after forgiveness was granted.
According to SBA Office of Inspector General reports, Hold Code 70 is applied when the SBA’s post-forgiveness screening identifies indicators that the borrower may not have been eligible for the loan in the first place, may have provided false information on the application or forgiveness request, or may have misused loan proceeds in violation of program requirements. This code is often applied to loans that were initially approved and forgiven through automated processing, but where subsequent data matching or manual review uncovered red flags that should have prevented approval.
The most common reasons for Hold Code 70 assignments include businesses that weren’t in operation on February 15, 2020 (the eligibility date requirement), significant discrepancies between payroll costs claimed on the PPP application and actual payroll tax filings, evidence that loan proceeds were used for prohibited purposes like owner compensation above program limits or non-eligible expenses, and indicators that the business is a shell company with no legitimate operations or that the loan was obtained using stolen or fabricated identities.
If your forgiven loan has been assigned Hold Code 70, the SBA is essentially reconsidering whether you should have been forgiven at all, and they’re evaluating whether to demand repayment of the forgiven amount, refer your case to the Office of Inspector General for fraud investigation, or pursue civil liability under the False Claims Act. This is NOT a routine compliance check—its a serious review of your eligibility and conduct, and you need legal counsel immediately to assess your exposure and determine how to respond.
Why Would My PPP Loan Be Flagged?
PPP loans can be flagged for a wide range of reasons, from minor technical errors that can be quickly resolved to serious fraud indicators that trigger criminal investigations. Understanding why your loan was flagged is critical because it determines the appropriate response strategy and the level of legal exposure your facing.
One of the most common reasons loans get flagged is duplicate applications—meaning the SBA’s systems detected that you or your business applied for multiple PPP loans, either from different lenders or using slightly different business names or identifying information. In some cases, duplicates are innocent errors where a business applied through multiple lenders not knowing which one would approve them first, but in other cases, duplicates are fraud indicators suggesting someone was trying to obtain multiple loans they weren’t entitled to. If your loan is flagged for duplication, you’ll need to explain which application is legitimate and provide documentation showing there business circumstances that led to the duplicate filings.
Payroll discrepancies are another major reason for flags. The SBA’s automated systems compare the payroll costs you claimed on your PPP application against your IRS payroll tax filings, and if there are significant differences, your loan will be flagged. This might happen if you overstated your employee count, inflated average payroll costs, included compensation for employees who didn’t actually work during the calculation period, or made calculation errors in determining your maximum loan amount. Even innocent mistakes in payroll calculations can result in flags that require extensive documentation to resolve.
Business eligibility issues trigger flags when the SBA’s data matching identifies that your business may not have been operating on the required eligibility date, that your business doesn’t appear in state business registration databases, that your EIN wasn’t issued until after the eligibility date, or that there’s no evidence of legitimate business operations like tax filings, payroll records, or revenue. These flags are particularly serious because they suggest the loan application may have been entirely fraudulent rather than just containing errors.
Use of funds concerns can flag loans either during the forgiveness review process or after forgiveness has been granted. If your forgiveness application shows that a significant portion of loan proceeds was used for non-payroll expenses that don’t qualify under the program rules, or if your bank records show suspicious transactions like large cash withdrawals, transfers to personal accounts, or purchases of prohibited items, the SBA may flag your loan for investigation into whether you misused the funds and should be required to repay them.
Fraud indicators from the Treasury Department’s “Do Not Pay” database can also trigger flags. The Do Not Pay system maintains lists of individuals and entities who are excluded from receiving federal benefits due to prior fraud, criminal convictions, or other disqualifying factors, and the SBA screens PPP applications against this database. If your name, your EIN, or information about principals in your business appears in Do Not Pay, your loan will be flagged even if it was initially approved.
What Happens After My Loan Is Flagged?
Once your PPP loan is flagged, what happens next depends on the severity of the issue, whether the flag can be resolved by your lender or requires SBA intervention, and whether the flagged issue indicates potential fraud that needs investigation versus a compliance problem that can be corrected. The process can range from quick resolution in a matter of days to extended investigations lasting months or even years.
For many hold codes, your lender has the ability to resolve the flag by obtaining additional documentation from you and certifying to the SBA that the issue has been addressed. For example, if your loan was flagged for a missing data field or for an apparent duplicate that’s actually a legitimate second draw loan, your lender can provide the clarifying information and the hold code will be lifted, allowing processing to continue. These types of technical flags are usually resolved quickly as long as you respond promptly to your lender’s requests for additional information.
For more serious flags that indicate potential eligibility issues or fraud concerns, the SBA takes over the review process and your lender no longer has authority to resolve the hold code. In these cases, the SBA will conduct a manual review of your loan application, your supporting documentation, and potentially additional information from government databases or third-party sources. You or your lender will typically receive written notice explaining what issue the SBA has identified and what additional documentation is needed to resolve the review.
During the SBA’s manual review process, you’ll need to provide extensive documentation supporting your eligibility for the loan, the accuracy of the figures you claimed on your application, and your use of loan proceeds for eligible expenses. This might include payroll reports from your payroll provider, tax returns for the business and for owners, bank statements showing deposits and expenditures of loan proceeds, state unemployment insurance reports, copies of leases or mortgage statements for business premises, and narrative explanations addressing the specific concerns the SBA has raised.
The review timeline varies widely depending on the complexity of the issues and the SBA’s backlog. Some manual reviews are completed in a matter of weeks, while others can take six months or more, particularly if the SBA requests multiple rounds of additional information or if they’re coordinating with other agencies like the IRS or the Department of Justice. During this entire period, your loan remains in hold status—you can’t receive forgiveness if that’s what was pending, and you may be required to begin making loan repayments even though the forgiveness determination hasn’t been made.
If the SBA’s manual review identifies serious problems—such as evidence that you weren’t eligible for the loan, that you made material misrepresentations on your application, or that you misused loan proceeds—the matter can be referred to the SBA Office of Inspector General for criminal investigation, to the Department of Justice for civil enforcement under the False Claims Act, or both. At that point, your no longer dealing with a routine compliance review; your facing potential criminal charges and civil liability that can include treble damages, penalties, and attorney fees.
Does a Flagged Loan Mean I’m Under Investigation?
Not necessarily, but it certainly can, and distinguishing between a routine compliance review and an actual fraud investigation is critical because the appropriate response is completely different for each scenario. A flagged loan by itself doesn’t mean your under criminal investigation, but certain types of flags and certain SBA actions in response to flags are clear indicators that investigators are involved and that you need to treat the matter as a criminal case.
Many flagged loans are handled purely as administrative matters where the SBA simply wants to verify your eligibility and the accuracy of your application before processing forgiveness or completing loan disbursement. If your lender is communicating with you about the flag, if the requests are for standard documentation like payroll records and tax returns, and if there’s no mention of investigators or criminal referrals, you’re likely dealing with a compliance review rather than a criminal investigation.
However, several indicators suggest that a flagged loan has escalated to an investigation. If you receive contact from SBA Office of Inspector General special agents rather than from SBA loan processing staff, that’s a clear sign your case is being investigated for potential fraud. If you receive subpoenas for documents or testimony rather than routine requests for information, you should assume an investigation is underway. If federal agents from the FBI, IRS Criminal Investigation, or other law enforcement agencies contact you asking questions about your loan, that’s definitive evidence of a criminal investigation.
Another indicator is if your lender tells you that they’ve been instructed not to communicate with you directly and that all inquiries need to go through the SBA, or if your lender receives subpoenas for information about your loan. This suggests that investigators are involved and that the matter is being handled as a potential fraud case rather than a routine review.
If you receive notice that your case is being referred to the Office of Inspector General, or if you see references to fraud investigation, criminal referral, or law enforcement coordination in any communications from the SBA or your lender, you need to stop communicating with anyone about your loan except through an attorney. At that point, anything you say can be used against you in a criminal prosecution, and trying to explain or defend yourself without legal representation is one of the most dangerous mistakes you can make.
Even if you can’t definitively determine whether your flagged loan has become a criminal investigation, if the flag involves serious issues—like allegations that your business wasn’t operating, that you fabricated documents, or that you misused funds for prohibited purposes—you should treat it as a potential investigation and consult with legal counsel before responding to any SBA requests or making any statements about your loan.
Can I Still Get Forgiveness If My Loan Is Flagged?
Yes, many flagged loans ultimately receive forgiveness once the issues that triggered the flags are resolved and the SBA is satisfied that the loan was legitimate and properly used. However, the forgiveness process will be significantly delayed while the flag is investigated and resolved, and if the underlying issues can’t be satisfactorily explained, your forgiveness may be denied in whole or in part, requiring you to repay the loan plus interest.
The key to getting forgiveness for a flagged loan is responding comprehensively and accurately to the SBA’s information requests, providing documentation that supports your eligibility and your use of funds, and addressing the specific concerns that triggered the flag in the first place. If the flag was based on a misunderstanding or incomplete information, providing the correct information and documentation should allow the SBA to clear the flag and process your forgiveness.
For example, if your loan was flagged because the automated systems detected an apparent payroll discrepancy, but the discrepancy is actually explained by differences in how payroll costs are calculated for PPP purposes versus how they’re reported on tax forms, providing detailed payroll reports and a clear explanation of the calculation methodology should resolve the issue. Similarly, if your loan was flagged for appearing to be a duplicate, but you can show that the two applications were for legitimately separate entities or for first draw versus second draw loans, that documentation should clear the flag.
However, if the flag identified actual problems with your loan—such as inflated payroll figures that can’t be supported by documentation, use of funds for non-eligible expenses, or eligibility issues that mean you shouldn’t have received the loan in the first place—forgiveness will likely be denied for the portion of the loan that’s problematic. In these situations, you may still be able to obtain partial forgiveness for the portion of the loan that was legitimate and properly used, but you’ll owe repayment on the excess amount plus interest.
The timeline for forgiveness of flagged loans is highly variable and depends on how quickly you provide requested documentation, how complex the issues are, and how backlogged the SBA’s review process is. Some flagged loans get resolved and forgiven within a few months, while others remain in review status for a year or more. During this time, your obligation to make loan payments depends on your loan terms and whether your lender has placed the loan in deferment pending the forgiveness determination.
If your loan is flagged and your concerned about whether you’ll be able to obtain forgiveness, working with an attorney who understands the PPP program requirements and the SBA’s review process can significantly improve your chances of success. We can help you identify what documentation the SBA needs, how to present your case effectively, and whether there are issues that need to be proactively addressed before they become grounds for denial.
Should I Repay My Loan If It’s Flagged?
Whether you should repay a flagged PPP loan voluntarily—before the SBA makes a forgiveness determination or before any investigation is completed—is a strategic decision that depends on whether there are actual problems with your loan, what your overall criminal and civil exposure is, and whether voluntary repayment might reduce your risk of prosecution or civil liability. This isn’t a decision you should make without consulting legal counsel, because while repayment can sometimes help your case, it can also be seen as an admission of wrongdoing that strengthens the government’s case against you.
In some situations, voluntary repayment makes strategic sense. If you’ve identified genuine errors in your loan application—maybe you overstated your payroll costs, claimed more employees than you actually had, or used some portion of the funds for non-eligible expenses—repaying the excess amount before the SBA discovers the problem can demonstrate good faith and lack of criminal intent. By proactively making the government whole, you’re showing that your not trying to keep money you weren’t entitled to, which can be a powerful argument against criminal prosecution.
Voluntary repayment can also be part of a negotiated resolution with the SBA or the Department of Justice, where you agree to repay the loan plus interest and potentially civil penalties in exchange for the government declining to pursue criminal charges. In cases where the evidence of wrongdoing is clear but there are mitigating factors—like reliance on professional advice, good faith misunderstanding of complex program rules, or relatively small amounts involved—prosecutors may be willing to accept repayment and civil settlement rather than pursuing a criminal case.
However, voluntary repayment can also backfire if not handled carefully. By repaying the loan, your implicitly admitting that you weren’t entitled to it or that there were problems with how you obtained or used it, and that admission can be used against you in a False Claims Act lawsuit or in a criminal prosecution. If you repay the loan but prosecutors still decide to file charges, they’ll point to your repayment as evidence that you knew your application was fraudulent or that you knowingly misused the funds.
Additionally, repayment doesn’t necessarily prevent prosecution or civil liability—its not a “get out of jail free card” that automatically makes legal problems go away. The government can accept your repayment and still prosecute you criminally for fraud, particularly if they believe the conduct was intentional and serious enough to warrant punishment beyond just recovering the money. Civil liability under the False Claims Act can include treble damages and penalties on top of repayment, so returning the loan doesn’t eliminate your exposure to those additional consequences.
Before making any decision about voluntary repayment, you should consult with an attorney who can assess your specific situation, evaluate whether there are actual legal problems that need to be addressed, and advise you on whether repayment should be part of a broader strategy that includes negotiation with prosecutors, cooperation agreements, or other protective measures. Repayment is most effective when its done as part of a coordinated legal strategy, not as a panic reaction to a flagged loan.
How We Help Clients With Flagged PPP Loans
When you hire us to represent you in connection with a flagged PPP loan, we provide comprehensive legal counsel designed to resolve the flag as favorably as possible, prevent routine compliance reviews from escalating into fraud investigations, and protect you from criminal prosecution and civil liability if serious issues are identified. We’ve successfully helped clients navigate SBA reviews, resolve flagged loans, and defend against fraud allegations, and we understand both the technical requirements of the PPP program and the criminal enforcement landscape.
We start by determining exactly why your loan was flagged, what hold code or error message is attached to it, and what the SBA’s specific concerns are. This requires reviewing all communications from your lender and the SBA, examining your loan application and forgiveness request, and in some cases, directly contacting the SBA on your behalf to understand what documentation or explanation they need to resolve the flag. Understanding the nature of the problem is essential before we can develop an appropriate response strategy.
We conduct a comprehensive internal review of your PPP loan to identify any potential issues, inaccuracies, or vulnerabilities that might have triggered the flag or that could be discovered during the SBA’s review. This confidential assessment allows us to understand the strength of your position, whether there are problems that need to be proactively addressed, and what defenses might be available if the matter escalates. We’ll tell you honestly what we find and what your realistic options are, because effective representation requires understanding both the good and the bad aspects of your case.
For flags that can be resolved through additional documentation and explanation, we work with you to gather the necessary records, organize them in a clear and persuasive manner, and present them to the SBA in a way that addresses there concerns while protecting your interests. This might include detailed payroll analyses showing how your loan amount was calculated, business records demonstrating your operations during the eligibility period, or explanations of circumstances that might look suspicious but are actually legitimate.
If the flag indicates serious problems that can’t simply be explained away—such as genuine errors in your application, use of funds for prohibited purposes, or eligibility issues—we assess whether voluntary disclosure, repayment, or negotiated settlement makes sense as an alternative to letting the SBA complete there review and potentially refer your case for prosecution. In appropriate cases, we can approach the SBA or Department of Justice on your behalf to negotiate resolutions that resolve your civil liability and criminal exposure while minimizing the financial and reputational damage.
If your flagged loan has escalated to a fraud investigation, we immediately shift into criminal defense mode to protect your constitutional rights and manage your exposure. We handle all communications with investigators and prosecutors, advise you on whether to assert Fifth Amendment rights, negotiate terms for any cooperation or proffer sessions, and develop a comprehensive defense strategy. Our goal is to prevent charges from being filed if possible, or to achieve the most favorable resolution if prosecution moves forward.
Throughout the process, we work to minimize the disruption to your business and your life. Flagged loans and SBA investigations can drag on for months or years, creating uncertainty about your financial obligations, your ability to operate your business, and your personal exposure. We pursue resolution as efficiently as possible while ensuring that we don’t sacrifice your interests for the sake of speed.
If your PPP loan has been flagged for review, don’t try to handle it alone and don’t make the mistake of thinking it will just go away if you ignore it. Contact us immediately for a confidential consultation, and let us assess your situation and develop a strategy to protect your interests and achieve the possible outcome.