PPP Loans May Now Be Returned by May 14 Under Extended Safe Harbor

May 07, 2020

By Richard Shapiro

In an update to its Frequently Asked Questions (“FAQs”) addressing Paycheck Protection Program (“PPP”) loans, the Small Business Administration (“SBA”) has announced that it is extending the “safe harbor” deadline for repaying PPP loans to May 14, 2020 from May 7. 

Consistent with requirements set forth in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), an applicant for a PPP loan must certify in “good faith” that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the [a]pplicant.”  Failure to satisfy this certification can result in penalties, including criminal penalties, for knowingly making a false statement to obtain the loan.

In commenting on this certification, the FAQs note that 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.”  While this was initially directed to public companies with substantial market value and access to capital markets – the FAQs provide a specific example of such a public company -- the FAQs were later amended to broaden their focus.  Specifically, the SBA announced that it would review all loans in excess of $2 million, “in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.”   The FAQs indicate that additional guidance will be forthcoming implementing this review procedure. 

However, the FAQs provide a safe harbor -- any borrower that repays the PPP loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith and not be subject to penalties.  (Under an interim final rule of the SBA issued on April 28, borrowers that applied for a PPP loan prior to the issuance of the final interim rule and repay by May 7 are entitled to the safe harbor.)  As noted, the May 7 date has just been extended to May 14.

The FAQs also provide that an employer that repays the PPP loan by the safe harbor deadline will be treated as though the employer had not received the PPP loan for purposes of the employee retention credit provision of the CARES Act.  That is important because an employer with a PPP loan is not eligible for the employer retention credit.  Accordingly, an employer taking advantage of the safe harbor repayment would be eligible for the employee retention credit if the employer is otherwise an eligible employer for purposes of the credit.

Many questions remain with respect to the application and administration of the Paycheck Protection Program and the interpretation of its various – and evolving – rules.  We will keep you informed of new developments with respect to PPP loans.  In any event, however, we strongly suggest that PPP borrowers keep appropriate records memorializing both the need for the loan received as well as the utilization of the loan proceeds for purposes of the PPP loan forgiveness requirements.

About Richard J. Shapiro

Richard Shapiro, Tax Director and member of EisnerAmper Financial Services Group, has over 35 years' experience in federal income taxation, including the taxation of financial instruments and transactions, both domestic and international.