SBA Extends Safe Harbor Repayment Deadline for Paycheck Protection Program Loans


Late on May 5, 2020, the Small Business Administration (“SBA”) issued additional guidance in the form of a new Frequently Asked Question (“FAQ”) that extends the previous deadline in which to return Paycheck Protection Program (“PPP”) loan funds from May 7, 2020 to May 14, 2020.

This new FAQ number 43 serves as a follow up to previously issued FAQs numbers 31, 37, and 39, which were discussed in our previously issued April 30, 2020 alert,

FAQ 43 states as follows:

“43. Question: FAQ #31 reminded borrowers to review carefully the required certification on the Borrower Application Form that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’  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 7, 2020 will be deemed by SBA to have made the required certification in good faith.  Is it possible for a borrower to obtain an extension of the May 7, 2020 repayment date?

Answer: SBA is extending the repayment date for this safe harbor to May 14, 2020. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor.  SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020.”

FAQs 31, 37, 39, and 43 and the SBA Interim Rule issued on April 28, 2020 were issued in response to considerable public outcry regarding large companies with significant assets which applied for and received loans under the PPP.  Of particular focus were a number of publicly held companies which were recipients of PPP loans.  Many of those publicly held companies have now returned the funds.  Multiple sources have published lists of publicly held companies which applied for and received PPP funds and those which have returned PPP funds.

This new guidance provides some challenges for PPP loan recipients.  U.S. Treasury Secretary Steven Mnuchin has stated that any business which receives a PPP loan in excess of $2 million will be audited before the loan will be forgiven.  This audit threshold was formalized in FAQ 39, which confirmed that all loans in excess of $2 million will be reviewed following the lenders submission of the forgiveness application. 

Audits need not be limited to loan forgiveness, however, but could cover other matters such as loan eligibility requirements, the use of PPP funds, and/or the validity of certifications provided in connection with the PPP loan application and/or loan forgiveness process.

Businesses which have applied for and/or received PPP loans should carefully review their need for the funds.  In doing so, we suggest that they look at a multitude of factors, including (i) any downturn in the company’s activities or operations, (ii) collectability of receivables, (iii) downturn in future contracts/work backlog and general business operations of the company, (iv) the company’s access to other sources of liquidity sufficient to support ongoing operations, (v) whether accessing such other sources of liquidity would be detrimental to the company, and (vi) whether, without the PPP loan, the company would  have had the need to implement furloughs or pay cuts. 

To prepare for these audits, companies should keep sufficient documentation to support, among other things:  (i) their consideration of the factors set forth above which were made when applying for the PPP loan, (ii) calculations regarding the permissible loan amount, (iii) full time equivalent headcount and the amount of any reduction in compensation paid during the requisite periods to support the calculations regarding the amount of loan forgiveness, and (iv) the use of the PPP loan proceeds during the eight week period following the origination of the loan. 

The SBA has assured us that additional guidance will be issued prior to the May 14th deadline on this issue.  Companies should carefully consider the new SBA guidance when issued in determining whether there is a need to return any PPP funds. 

If you have questions on the Paycheck Protection Program, you can reach out to the attorneys at Atkinson, Andelson, Loya, Ruud & Romo.

This AALRR publication is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process. 

©2020 Atkinson, Andelson, Loya, Ruud & Romo




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