SBA Offers Safe Harbor, Extends PPP Loan Repayment Deadline for Those in “Good Faith”– May 08, 2020

The Small Business Administration (SBA) has extended the repayment deadline for Payroll Protection Program (PPP) borrowers who wish to take advantage of the “good faith” self-certification of eligibility option. The deadline is now automatically extended from May 7, 2020, to May 14, 2020.

Companies that repay their loans by that date preempt the possibility of criminal liability if they’re subsequently found ineligible for PPP loans. The loans are intended to help small businesses with fewer than 500 employees weather the novel coronavirus (COVID-19) pandemic, but some large companies have applied for and received funds.

>> Read the 8 clarifications to help determine if your business is eligible for the PPP

Certification that Your Business Needs the PPP Loan

In April 2020, the U.S. Treasury and the SBA issued frequently asked questions (FAQs) on PPP loans. One question asks whether businesses owned by large companies with adequate sources of liquidity to support their ongoing operations qualify for PPP loans.

The SBA explained that — in addition to reviewing applicable affiliation rules to determine eligibility — all borrowers must evaluate their economic need for a loan under the standards in effect at the time of the loan application. The standards are set by the CARES Act, which established the PPP as well as subsequent regulations.

>> Read “CARES Act Offers 14 Areas of Potential Tax Relief for Taxpayers”

Among other things, borrowers must certify that their PPP loan request is necessary. Specifically, they must certify that “current economic uncertainty” makes the loan necessary to support ongoing operations. The certification must be made in good faith, taking into account the borrower’s current business activity and ability to access other sources of liquidity in a way that’s not “significantly detrimental” to the business.

The FAQs originally provided that any borrower that applied for a loan prior to April 24, 2020, and repays the funds in full by May 7, 2020, would be deemed by the SBA to have made the certification in good faith. As of May 5, 2020, though, the FAQs have been revised to reflect an extension of this safe harbor to May 14, 2020. The extension will be automatically implemented, with no need for borrowers to apply for it.

What If You Don’t Use the Safe Harbor and Later are Deemed Ineligible for the PPP?

Companies that don’t take advantage of the safe harbor and are later found ineligible for the PPP could face criminal liability, according to Treasury Secretary Steven Mnuchin. The loan application notes that making a false statement to obtain a guaranteed loan from the SBA is punishable by imprisonment of up to five years and/or a fine of up to $250,000.

A borrower that falsely self-certified also could be subject to criminal or civil liability under the False Claims Act (FCA). The FCA permits treble damages, or triple the amount of the government’s actual damages, as well as civil penalties, imprisonment up to five years and a fine up to $250,000 for criminal liability.

Guidance Moving Forward

Our guidance on this topic remains unchanged. PPP loans were intended to allow businesses to maintain employment levels in spite of deteriorating economic conditions. These loans either fund unproductive labor costs that a business would not otherwise be willing or able to maintain at a time of extreme economic uncertainty, or they are required to be repaid. They do not enrich the businesses they were designed to help.

Businesses need to:

  • Document economic uncertainty and any plans that may have been in place to reduce costs prior to receiving the PPP loans, and
  • Review their debt agreements to determine if there are any restrictions that prevent them from accessing other sources of debt.

Businesses should not exhaust business debt and/or inject personal wealth into a business to fund payroll for nonproductive employees. Doing either could be significantly detrimental to a business.   

Also be aware that for purposes of the employee retention credit, according to a recently revised IRS FAQ, companies that applied for a PPP loan, received payment and repay the loan by the safe harbor deadline of May 14, 2020, will be treated as though they had not received a covered loan. Repayment of the loan would retroactively make a borrower eligible for the employee retention credit, assuming all of the other eligibility requirements are met.

Contact Dave Sobochan at or Adam Hill at to discuss your situation.

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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.