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PPP Repayment Deadline Extended But Confusion Remains

May 7, 2020 Business & Tax Blog COVID-19 Payment Protection Program

On May 5, 2020, the Small Business Administration (“SBA”) in consultation with the Department of Treasury (“Treasury”) announced in a new online FAQ that it is giving extra time for companies to repay loans they applied for and received in good faith under the initial guidance provided by the SBA to the Paycheck Protection Program (“PPP”). Originally set for May 7, 2020, the deadline to repay the loan without incurring penalties is now extended to May 14, 2020. The SBA also stated that it plans to issue “additional guidance on how it will review certification prior to May 14, 2020.”

Enacted as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the PPP provides small businesses with forgivable loans to pay up to eight weeks of payroll costs and certain other expenses. As contemplated by CARES, qualifying small businesses (500 or fewer employees) simply had to certify that current economic uncertainty made the loan request necessary to support the ongoing operations of the business.

However, over the past few weeks, this “necessity” certification has proved to be less simple than it reads, turning the PPP from a source of hope for many businesses into a pitfall. As discussed in our prior post, on April 23, 2020—around the same time the initial PPP funding ran dry—the SBA released FAQ 31, cautioning borrowers that they need to certify that the loan is indeed necessary to support ongoing operations and offering those who previously received PPP loan proceeds the chance to reconsider their certifications and return the proceeds by May 7, 2020. To add to the complexity, the SBA required that borrowers—without providing further clarification—make the certification based on (i) “their current business activity” and (ii) “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.” The SBA followed FAQ 31 up with FAQ 37, which clarified that the liquidity component of the certification applies to private companies as well as public companies.

Following the release of these FAQs, many companies were left confused and unsure of whether they fit the repayment criteria. Worse still based on the stated intention and explicit language of CARES—and in the absence of clear guidance from the SBA—many companies chose to retain employees and maintain certain costs they would not have otherwise based on the PPP funding.

While waiting for the SBA’s next round of guidance, businesses will want to take the time to review their specific financial situation in light of the current guidance from the SBA on the “necessity” certification. Businesses should consider items such as ability to access liquidity quickly, revenue projections, employee maintenance and acquisition costs within a specific field, and even location of operations.

We will be monitoring the situation for any further guidance from the SBA on this topic in hopes that such guidance will bring us closer to the original intent of CARES to provide meaningful financial support for both individuals and businesses suffering from the continuing COVID-19 pandemic.

Attorney James-Allen McPheeters co-authored this post.