The U.S. Small Business Administration (SBA) has extended the “safe harbor” deadline to return unqualified PPP funds to May 14. That means companies can return the funds before that date without penalty. If your organization received a Paycheck Protection Program (PPP) loan and you have now determined that you don’t meet the requirements for “economic uncertainty,” this is your opportunity to return the funds without incident. In other words, SBA guidance and regulations provide that any borrower who applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May 14, 2020 (previously May 7) will be deemed by SBA to have made the required certification in good faith.
Specifically, before submitting a PPP application, the SBA instructs all borrowers to review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification
All indicators point to the fact that the PPP was intended for smaller businesses hardest hit by COVID-19. However, the money available to borrow ran out very quickly. Officials discovered that large companies received tens of millions of dollars in relief—despite their relative stability. The SBA has therefore indicated that they will audit all borrowers who receive funding of $2 million or more. This is an apparent response to the backlash of larger and more financially secure companies receiving PPP funds during the initial loans, to the exclusion and detriment of smaller organizations with a greater need.
The PPP has since been infused with an additional $310 billion, along with new safeguards and areas of scrutiny.
If you’ve received a PPP loan, we recommend that you scrutinize your situation to make sure you qualify for the funds, that is, your “ability to access other sources of liquidity sufficient to support [your] ongoing operations in a manner that is not significantly detrimental to the business.” You should return any unqualified PPP funds you have received during the safe harbor window to avoid penalties.
Even if you do not deem it necessary to return the funds, you should still document thoroughly the purpose of your loan and the specific use of your loan proceeds. Track how you’re spending these funds, particularly those amounts spent on the items originally intended to be covered by the PPP (including the number of employees and their respective compensation).
We will continue to post the latest developments and resources to our COVID-19 Resource Center, so please check back often!