PPP Loan Payback? Safe Harbor Provision Lets Companies Pay Back “Unnecessary” Loan Money

**Update 5/6/2020: As of May 5, the SBA updated its PPP FAQ’s, announcing its intention to extend the PPP Safe Harbor period to May 14. This post has been updated to reflect this change.

***Update 5/14/2020: As of May 14, the SBA updated its PPP FAQ’s once again, announcing its intention to extend the PPP Safe Harbor period to May 18. This post has been updated a second time to reflect this change. The SBA has also supplemented its guidance on the Safe Harbor Provision, as discussed here.

If you’re a parent, you might be familiar with the SBA and Treasury Department’s current strategy to crack down on businesses taking Paycheck Protection Program funds when they don’t qualify: if ineligible businesses ‘fess up and return the money by May 14, nobody gets in trouble.

On April 28, the SBA published its most recent interim rule on the PPP, including updates on promissory note requirements and additional information on the kinds of businesses eligible for PPP loans. Among these other clarifications, the SBA also included a section entitled “Limited Safe Harbor with Respect to Certification Concerning Need for PPP Loan Request.”

In line with section 1102 of the CARES Act, the current PPP Borrower application form requires PPP applicants to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” However, according to the SBA, this statement has been misunderstood or misapplied so often that a “safe harbor is necessary and appropriate to ensure that borrowers promptly repay PPP loan funds” if they didn’t accurately follow the certification’s standards.

While Shake Shack was one of the first companies to repay its loan, and others have faced public scrutiny for not returning their own, the SBA’s up to date FAQ for Lenders and Borrowers makes clear that any business who didn’t 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” will be allowed to repay the loan, free and clear, by May 14.

Notably absent from information about the safe harbor provision is guidance on what it actually means to certify that current economic uncertainty made an entity’s loan request necessary. The SBA’s FAQs on the PPP don’t provide much more clarity, but do say that “[f]or 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.”

In addition to lacking more explicit information about the meaning of the certification, the safe harbor provision also doesn’t appear to apply to misapplication or misunderstanding of other eligibility requirements—including size requirements (discussed on our blog here and here). Still, if a company fears that it may have incorrectly certified that it was a small business or that it met other requirements, it is definitely in that company’s best interest to return the funds it received before the end of the safe harbor period.

On top of many other questions presented by the safe harbor provision is perhaps the most important one: What happens after May 14? The answer to this, like many other things, is currently in flux. Certainly, businesses found to have certified that they required the loan, when they, in fact, did not, will not be deemed to have acted in good faith and are likely to face other consequences for making misrepresentations to the federal government. For now, keep your eyes on the blog, where we’ll provide updates as we hear more. You can also call us if you have any questions or concerns about your company’s certifications or the safe harbor provision—we’re happy to help!

**Update 5/6/2020: As of May 5, the SBA updated its PPP FAQ’s, announcing its intention to extend the PPP Safe Harbor period to May 14. This post has been updated to reflect this change.

***Update 5/14/2020: As of May 14, the SBA updated its PPP FAQ’s once again, announcing its intention to extend the PPP Safe Harbor period to May 18. This post has been updated a second time to reflect this change. The SBA has also supplemented its guidance on the Safe Harbor Provision, as discussed here.