Safe Harbor: Returning Unqualified PPP Funds
Originally published on May 6, 2020
Updated on June 16th, 2022
If you’ve received a Paycheck Protection Program (PPP) loan and don’t meet the requirements for “economic uncertainty,” take note. The U.S. Small Business Administration (SBA) is giving companies until May 18 to return unqualified PPP funds without penalty. The agency intends to provide additional guidance on how it will review the certification prior to this deadline.
In addition, the SBA has stated that they will audit all borrowers who receive funding of $2 million or more. The move is in response to larger and more financially secure companies receiving PPP funds during the initial loans.
Although the PPP was intended for smaller businesses hardest hit by COVID-19, the money ran out within weeks. It was then discovered that large companies received tens of millions of dollars in relief—despite their relative stability.
The program has since been infused with an additional $310 billion. New safeguards are also in place to help prevent this disparity from happening again. The main areas to be scrutinized on each loan include:
- Necessity for the loan (determined using standards set by the SBA)
- The company’s size eligibility
- The amount of the loan requested
- The use of loan proceeds
On April 15, the SBA issued an FAQ document regarding PPP loans. One section urged borrowers to “review carefully the required certification” when it comes to whether they need the loan. It then specified a safe harbor window of May 7 for businesses to return unqualified PPP funds. On May 5, an updated FAQ extended this deadline to May 14, on which date it was then extended to May 18. (This extension is automatic; there is no need to file for it.)
If you’ve received a PPP loan, you should first scrutinize your situation to make sure you qualify for the funds. Any unqualified PPP funds you receive should be returned during the safe harbor window to avoid penalties.
Otherwise, you should document thoroughly the purpose and use of your loan. Track how you’re spending these funds, along with the number of employees you have and the compensation you pay them.
Our small business CPAs can help you determine need and ensure proper documentation of your PPP funds. Contact James Moore for assistance on this and other COVID-19 relief measures to keep your business running.
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