As previously discussed here, the Paycheck Protection Program (PPP) was initiated by the federal government last month to assist small businesses impacted by the COVID-19 shutdown. To date, approximately 4,000,000 companies have secured a combined total of close to $500,000,000,000 in loans, an average of around $125,000 per borrower. While the PPP was intended for small businesses, almost immediately various media outlets began reporting substantial PPP loans were granted to large companies like Shake Shack, Ruth’s Chris Steakhouse, and the LA Lakers. As a result, the loan application and forgiveness process has become highly scrutinized.
In an effort to address the flood of questions and increasing scrutiny, the Small Business Administration (SBA) and the Treasury have continued to issue rules and regulations on the PPP loan application and forgiveness process. The first rules were issued April 2, 2020, and since that initial publication, a growing set of “Frequently Asked Questions” have been issued that are intended to further clarify the PPP loan process, and in particular, the requirements for an entity to qualify for forgiveness of their PPP loan.
One notable question is Question No. 31, which discusses, in part, whether large companies with access to other sources of capital would be unlikely to qualify for PPP loan since their loan was not necessary to support ongoing business operations. These clarifications have resulted in many large companies announcing they were returning their PPP loans. To assist in this process, the SBA released a safe harbor deadline (extended to May 14, 2020), to allow those large companies that misunderstood the PPP loan program to return the loan without penalty.
In the wake of this PPP loan confusion, many business owners are questioning whether their company is a “large company” and whether they have access to “other sources of capital”, all of which has led to the overarching question of “Will my business qualify for PPP loan forgiveness?”
While the answer to this question will vary for each business, it is important for business owners to understand that it does not appear that the Treasury or the SBA intend to review all loan applications. On April 28, 2020, Treasury Secretary Steve Mnuchin stated that the SBA will only do a “full review” of loans over $2,000,000 (which account for less than 3,000 of the companies that received PPP loans). In a subsequent publication (specifically Question 46 of the FAQ), the Treasury and SBA confirmed they intend to review only the loans over $2,000,000 and that companies receiving loans for less than $2,000,000 are deemed to have made the loan application “in good faith.” Furthermore, in Question No. 46, the Treasury and SBA confirmed that even if a PPP loan is reviewed and the SBA determines that the company does not meet the loan forgiveness requirements, the company will not be penalized, but instead will need to repay the loan within the designed time period at a low rate of interest.
This ever-evolving situation around PPP loans and the forgiveness process can be a great source of stress and confusion for business owners. If you are struggling to understand your PPP loan and whether your business will qualify for loan forgiveness, or would otherwise like some assistance in navigating the PPP loan process, please reach out to our office and work directly with one of our experienced attorneys.