Deadline to repay PPP loans extended to May 18

By Scott W. Faulkner, J.D., LL.M.

Yes, your business has gotten a loan through the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA). But not unexpectedly, dangers lurk in the process. And if you have any concerns with some of the good-faith certifications you made in the application, today (May 14, 2020) was the day to repay your loan and avoid the consequences.

But that date has been extended to Monday, May 18.

A concern may arise with the certification that the current economic uncertainty makes the loan request necessary to support the ongoing operations of your business.

So what is “economic uncertainty”?

Normally, to apply for an SBA loan, the applicant must be unable to obtain credit elsewhere. But the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) suspends that requirement. But just because an applicant doesn’t have to show inability to obtain credit elsewhere does not mean that the applicant is actually facing economic uncertainty. Thankfully, the frequently asked questions (FAQs) about the PPP on the SBA website provide a little guidance.

For example, the answer to question 31 suggests that the following type of business isn’t truly eligible for a PPP loan: a public company with substantial market value and access to other sources of money to support its ongoing operations so that significant detrimental effects to its operations are prevented.

Although not clearly stated in the FAQs, a private company with substantial market value and access to other sources of money may likewise not be truly eligible for a PPP loan.

The wording of the certification itself contains a certain degree of ambiguity that businesses need to be aware of if they have made the certification: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

Good news

If your business has already gotten a PPP loan and if management thinks there is any legitimate way your business operations aren’t truly affected by the current economic uncertainty, here is some good news about this situation.

1. If your business borrowed $2 million or less, you don’t have to be concerned. The SBA has established a safe harbor for such borrowers. The SBA, in consultation with the U.S. Treasury Department, has decided that businesses that borrowed $2 million or less are eligible for this safe harbor for three reasons:

1. Such businesses are less likely to have access to adequate sources of money in the current economic situation.
2. Providing the safe harbor will promote economic certainty for such businesses.
3. Establishing the safe harbor allows the SBA to concentrate its finite enforcement resources on businesses that received the larger loans where the recovery of inappropriate loans is likely to yield higher returns.

2. If your business borrowed more than $2 million, your business can pay back the money today, May 14, without consequences. Basically, no questions asked. But if your business doesn’t pay it back today, you must be prepared to prove that your certification is truly in good faith. So keep your records and your calculations.

3. If you’re not able to decide today about paying back the loan, you still have 4 more days to consider doing so—until Monday, May 18, 2020. Even better you don’t have to apply for this extension—which was announced yesterday, by the way. (See question 47 of the FAQs.)

4. Finally, if your business borrowed more than $2 million and your business doesn’t pay back the money today or Monday, the SBA has announced that it will not pursue administrative enforcement or referrals to other agencies so long as your business repays the money when the SBA notifies your business, at some point in the future, that the PPP loan was not really appropriate. (See question 46 of the FAQs.)

Bottom-line recommendations

• Relax if your business borrowed $2 million or less. You’re in the safe harbor.

• If your business borrowed more than $2 million, carefully review your certification with your management and accounting team and consult your outside financial and legal advisors to determine whether or not you want to repay your PPP loan by Monday, May, 18, 2020.

• If you don’t repay the loan, make sure you keep your analysis so that it can be used if the SBA ever questions the loan.

© 2020