The Best Thing About a Line in the Sand? It's Easily Moved-- Last Minute SBA FAQs Give Companies Some Breathing Room

The Graydon business team has spent the last few weeks advising clients on whether they should return PPP loan funds granted to them to avoid the scrutiny promised by Treasury Secretary Mnuchin both in a press conference and in subsequent FAQs. Even those clients who in our view were the poster-children for the program had second thoughts of whether to retain the funds, or to return them by May 14. In some instances, the dilemma caused conflict among company principals in wrestling with this issue. As it turns out, for many of these companies, the stress and angst were all for naught.

After much wrangling and pressure from a variety of groups, the SBA/Treasury on Wednesday released FAQ 46 which provides:

*          For PPP loans under $2M, the necessity of the loan will be presumed (i.e. there is a “safe harbor” for loans under $2M)

*          For PPP loans of $2M and over, while the borrower will still need to substantiate a good faith basis, the consequences of an SBA determination that the borrower should not have accessed the program because of other sources of liquidity is that the borrower will need to repay the loan w/o any portion being forgiven (vs. penalties, criminal prosecution, etc.)

Here is a link to the text of FAQ 46.

This is good news is the “worst case scenario” which was scaring a lot of people staring at the May 18 date to return the funds. (Very late on Wednesday, the deadline was extended to May 18 through FAQ 47).

Some questions remain, such as what about those companies that opted to return the funds before the Safe Harbor deadlines (first May 7, then May 14, now May 18)? We are aware of numerous clients that chose to return loans of under $2M just to avoid the unpredictable nature of an audit. Should they re-apply?

Stay tuned for the next piece of this saga. If you have any questions, please call one of Graydon’s business team to help guide you through this ever changing maze.