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Following a public outcry after large public companies received PPP loans, the SBA required borrowers to consider their ability to access other sources of liquidity when they certify a PPP loan is necessary. Large private or public companies with adequate access to liquidity or the markets were considered unlikely to qualify, prompting many firms to return their loans.
The initial date for making a return without penalty was May 14. Guidance released May 13 extended that deadline to May 18 (SBA FAQ Question 47).
A business that receive a loan of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith (Question 46). All PPP loans in excess of $2 million will be subject to review for compliance with program’s Interim Final Rules. If a borrower cannot show the loan was needed, the loan balance must be repaid and will not be eligible for forgiveness.
To prevent a double benefit, Congress did not allow a business to receive a PPP loan and also claim the Employee Retention Tax Credit (ERTC). This created confusion about the eligibility of businesses that subsequently returned their loans. Question 45 says that a business that received a PPP loan but return it by the May 18 safe harbor deadline can utilize the ERTC.
PPP loans can be forgiven if employee levels are maintained and 75% of the loan proceeds are used for payroll costs. The amount of forgiveness is reduced if employee and salary levels aren’t maintained in the 8-week period after the business receives the loan.
Question 40 provides that loan forgiveness will not be reduced if employees decline to be rehired. The FAQ further warns that “employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.”