Wisconsin Employers with PPP Loans: Take Note of "Safe Harbor" Extension to May 18, 2020, to Pay Back Unneeded Loans

In light of recent guidance from the Department of the Treasury, many Wisconsin business owners who received a Paycheck Protection Program (PPP) loan are contemplating whether or not to return the loan.

A safe harbor period was provided by the Small Business Administration (SBA) for employers, giving them time to consider returning the loan. The safe harbor date has been extended again from May 7 initially, to May 14, and is now extended to May 18, 2020.

Why would a business return its PPP loan?

The Treasury’s and SBA’s new guidance re-contextualizes the good faith certification borrowers made in asserting their need for the PPP loan to continue business operations. Because the loan program was part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, and was created quickly to mitigate the economic crisis of COVID-19, the program lacked details for employers trying to determine if their businesses qualified.

In addition to audits of PPP loans over $2 million, SBA and Treasury are now forcing larger borrowers to consider their “current business activity” and “access to other sources of liquidity sufficient to support their ongoing operation” when making the good faith certification on the Borrower Application Form.

What constitutes “liquidity” in determining the need for a PPP loan? The guidance has been ambiguous, but could include adequate sources of liquidity to support operations that come from being owned by a larger company.

Guidelines became somewhat clearer on May 13, 2020, to help PPP borrowers decide whether or not to return the loan. The SBA issued new guidance with regard to certification of need for a PPP loan. Essentially, any borrower that, together with its affiliates, received a PPP loan with an original principal amount of less than $2 million, will be deemed to have made the required certification concerning the necessity of the loan request in good faith. 

The SBA has determined that this safe harbor is appropriate because borrowers with loans below the $2 million threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment compared to those borrowers that obtained larger loans. 

The safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where compliance efforts may yield higher returns.

Should you pay the PPP loan back now?

A borrower who applied prior to the issuance of guidance and repays the loan in full by May 18, 2020, will be deemed to have made the certification in good faith that the PPP loan was necessary at the time of the application.

Consult with your lender or attorney as soon as possible to help you make this decision.

Lawyers in Wisconsin who can help you with the PPP loan process

The Wisconsin business and employment law attorneys at Murphy Desmond are staying on top of guidelines from the Treasury and SBA with regard to PPP loans. It is our goal to help you make the best decision with regard to financial assistance during COVID-19. Please contact us at email@murphydesmond.com or call us at 608.257.7181. We maintain offices in Madison, Janesville, Appleton, and Dodgeville, Wisconsin.

Updated May 14, 2020

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