What Happens When a Company Takes a PPP Loan it Doesn’t Need?

As we said in this space a few days ago, the SBA has put in place a safe harbor until May 14 for companies to return Paycheck Protection Program loan money if they find they don’t need it. No harm, no foul.

So, what happens if they don’t need it, but don’t return it? Maybe Clubber Lang said it best.

This safe harbor provision comes on the heels of several seemingly large and successful businesses, including the Los Angeles Lakers, for example, voluntarily returning their PPP loans after being publicly shamed by the media for taking money that could have gone to small businesses in need.

Senator Marco Rubio took to Twitter to announce that PPP loans were only for businesses on the verge of collapse. Specifically he said, “applicants must certify they’ve been harmed by crisis & need #PPPloan to operate[.] Any company with revenue to cover operations isn’t eligible[.]”

Leaving aside the fact that the PPP program does not actually say that—applicants must certify that the current “economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”, there is no requirement that they be virtually bankrupt—Sen. Rubio’s statement sends an obvious message that these loans are not to be taken lightly.

The most up-to-date version of the SBA’s PPP guidance uses far less stringent language, saying, “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.”

That’s a far cry from “any company with revenue to cover operations isn’t eligible.”

Nonetheless, adorning Sen. Rubio’s tweet was a press release in which he vowed that the Senate Committee on Small Business and Entrepreneurship would use its subpoena power to investigate misuse of PPP funds. That means that particularly egregious cases might get dragged before Congress to answer questions.

But public scrutiny isn’t the only downside. There’s also the concerning threat of actual jail time. The Department of Justice has opened an investigation looking to ferret out companies that provided false information in order to receive PPP funds.

That investigation has already borne fruit. The Justice Department charged two men in Rhode Island for allegedly seeking to fraudulently obtain over a half a million dollars in PPP loans.

FBI Special Agent in Charge Joseph R. Bonavolonta did not mince words, saying “today’s arrests should serve as a warning to others that the FBI and our law enforcement partners will aggressively go after bad actors like them who are utilizing the COVID-19 pandemic as an opportunity to commit fraud.”

In short, it’s pretty obvious that the government is trying to scare companies who do not need PPP funds from taking them. That being said, the program is intended to help small businesses weather an incredibly difficult time to preserve the jobs of American workers. Small businesses truly in need should not hesitate to seek this assistance.

Businesses unsure whether or not to apply for PPP funds should seek help to quickly determine their eligibility. You don’t want to find yourself on the wrong end of Clubber’s prediction.

Questions about this post? Email us or give us a call at 785-200-8919.

Looking for the latest government contracting legal news? Sign up here for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook.