May 14, 2020 Deadline Looms for Returning PPP Loan Funds
Based on concerns that some banks prioritized large Paycheck Protection Program loans over small loans and that some businesses should not have received funds, the Treasury Department has issued early warnings about returning funds and forgiveness scrutiny.
The U.S. Treasury Department slates May 14, 2020, as the deadline for companies to repay their PPP loans in full if they believe that they do not need the funds to cover adverse conditions from the COVID-19 pandemic. The date was recently extended from May 7, 2020.
The Paycheck Protection Program under the CARES Act was designed to help small businesses with 500 or fewer employees to maintain payroll and cover some expenses such as rents and utilities over an eight-week period. However, Secretary Steve Mnuchin announced at the end of April that any approved PPP Loans of $2 million or more will face review and scrutiny for forgiveness. He has since added that any small businesses should consider giving back the funds by the stated May 14 deadline if they don’t foresee needing them.
The first round of PPP loan funding experienced a depletion of trillions of dollars within two weeks. Investigation into loan approvals found that some large banks prioritized large publicly held companies over small businesses. Those instances gave rise to concern that some applicants may not have been eligible for funding under the good faith certification that “current economic uncertainty” made the loan request necessary.
Because borrowers had to certify in good faith that the funds were necessary to cover payroll during the pandemic, they will also have the burden of proof to demonstrate that their business or organization was negatively impacted and that the funds were necessary to maintain payroll and operations. The May 14 deadline gives companies an opt-out safe harbor option to return the funds without penalty.
Keep in mind that all businesses and organizations that received a PPP loan will need to document and prove negative impact from COVID-19 as part of the loan forgiveness process. Specific guidance on the application for loan forgiveness is still pending from the SBA, so talk to your CPA at DS+B to support clear documentation during the eight-week covered period.
Read our blog post about managing any relief funding that you have received or applied for under the CARES Act.