Do You Need to Return Your PPP Loan? SBA Clarifies Eligibility Guidance Through FAQ Update

Update: As of Wednesday, May 6, the safe-harbor deadline for returning PPP funds has been extended to May 14.

Complete the application, provide supporting documentation, and you should be well on your way to a forgivable loan. All the better since you must spend the money on payroll costs in order to receive forgiveness. It is called Paycheck Protection after all, right?

Not so fast according to recent updates published by the SBA. The SBA has recently issued new guidance that is important for companies to consider when applying for a loan through the Paycheck Protection Program (PPP). The new guidance strengthens some of the language regarding qualifications and eligibility for a PPP loan. It also makes clear companies that have already applied for and received their PPP loan should re-read the certifications and ensure they were eligible for the loan in the first place. If not, you have until May 7th to return the funds and receive “safe harbor” status. With so much uncertainty surrounding the program since inception, let’s take a step back and evaluate the options. What does this mean? What is it all about? And what should you be doing?

While Borrowers have been required to complete the certifications from day one, SBA has brought the issue front and center. Let’s take a look at the FAQ:

Answer applies to both questions above: The only distinction between the questions is if the business is owned by large company or privately owned.

In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that "current 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.

Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.

Okay, there you have it! Let me try to break down the important points for you.

Point 1.  Businesses Owned by another company 

The first major point to realize is the FAQs are geared towards small businesses that are OWNED by another company. The FAQs are directed at small businesses that have received outside investment, are owned by another company, or another company has the ability to exert control. To the extent your business is not owned or controlled by another company, you must evaluate liquidity and necessity on a stand-alone basis.

Point 2.  Adequate Sources of Liquidity

The next major point to focus on is “adequate sources of liquidity” which again pertains to large companies or private companies. This may be perceived as a company with access to the capital markets, and the ability to quickly and easily raise funds through the issuance of debt or equity. Consider this for a minute: if you have never used these instruments to fund your business, it is likely safe to assume you will not be able to raise funds using these instruments during a pandemic and global economic crisis. Do you remember the mad rush to get your PPP application in to your lender? The first application window was open for all of 13 days. Not a lot of time to work with your financial advisor, attorney, and accountants to prepare a debt or equity issuance.

Point 3.  Other Sources of Liquidity

The third point to understand is a business needs to take into account other sources of liquidity to the extent these funding sources are not significantly detrimental to the business. If the terms of the liquidity are onerous and would cause harm to the business, either today or down the road, it is fair to assume the business cannot access this funding source and provides another valid data point for obtaining the PPP loan in the first place.

One concluding point about access to liquidity and PPP necessity

it is not reasonable to assume you should load up your company’s balance sheet with unnecessary risk and leverage. Paycheck Protection was enacted to get you through the next two months. Do not place your company’s future in jeopardy by maxing out and drawing down on all available liquidity. Make sure you have enough runway to successfully navigate this crisis and scale up once the economy begins to open up. PPP enabled you to keep the connection with your employees, and they will be able to roll up their sleeves and get back to work when the time comes.

Questions or about your PPP loan eligibility? We're ready to help.

10 thoughts on “Do You Need to Return Your PPP Loan? SBA Clarifies Eligibility Guidance Through FAQ Update

  1. Hi

    While applying for PPP I could only include wages up to 100K yearly, NOW while using the money from this loan may I pay an employee $2K weekly which is more than 100K a year?

    1. Hi Ernest, payroll cost (salary, wages, commissions, or tips) is capped at $100,000 on an annualized basis for each employee. Wages paid in excess of $100,000 is permitted, but the excess wages paid will not be eligible for loan forgiveness. If you have any other questions, please visit our FAQ page.

  2. I am a sole proprietor – Schedule C filer. Am I subject to returning any PPP loan amount? Per FAQ #37 – what is meant by a “business?” Is my sole proprietor is considered a “business” as related to FAQ #37?

    Much appreciated.

    1. Hi Sang – As a Schedule C filer, loan forgiveness is available if you spend 75% of the loan proceeds on payroll costs and 25% on mortgage, rent, and utilities. Must spend in the 8 weeks following receipt of the loan proceeds. For more information, please visit our FAQ page:

  3. Hello,

    I applied for the loan and have been approved. I am just not sure if I want to sign the loan docs… and have my business have some type of repercussions if the ppp was only 13 day out and the specifics were not clear. your thoughts

    1. Hi Eileen – Thank you soliciting our thoughts but our goal is to provide guidance around the PPP loans. The ultimate decision is up to the business owners if they want to accept the loans. If you have any specific concerns in mind, we have a FAQ page that may be able to address some details.

  4. Help! I am a sole proprietor. I applied for the PPP loan (P.S. It is scary how fast it was approved and funds delivered in less than 24 hours!) and I received it. I honestly didn’t think I would get it. The complete amount of the loan is still in my account and I have not used it. The following day I was approved for unemployment and PUA. I understand you can only utilize the PPP OR PUA. I’d like to return the PPP. Can I? And how? Thank you!!

    1. Hi Sandra, you will need to contact the lender that approved your PPP loan and they will let you know how the loan can be repaid. It should be a straight forward process. Good luck!

  5. I had received the eidl loan- and the ppp- i didnt apply for the ppp AND i was given too much. What can i do and how do i go about returning the money? I had just received it 2 days ago

    1. Hi Anthony, you will need to contact the lender that approved your loan and they will let you know how the loan can be repaid. Good luck!

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