Should I Return My Paycheck Protection Program Loan?

In the last two weeks, there has been an abundant amount of public shaming and threatening guidance from the Department of Treasury around the Paycheck Protection Program (PPP). Guidance has discouraged companies with “adequate sources of liquidity” and reminded businesses that they must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” With all of this language, some businesses are asking “should I return my paycheck protection program loan?”. Today, there was guidance in the that makes answering that question easier.


The Paycheck Protection Program Frequently Asked Questions and other interviews from government officials gave businesses until May 14, 2020 to return their loan if they didn’t qualify based on further guidance. The key question remains:

Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant. 

This is a terribly ambiguous statement and the key clarification on top of that is public or private companies with adequate sources of liquidity to support the business’s ongoing operations would not be able to certify. Beyond that it is a judgement call.

I stand by my analysis in my article Paycheck Protection Program Round 2 – Update on Loans and Forgiveness where there isn’t immediate distress. As I noted, there are many scenarios where a lack of sales drop still means the uncertainty create a financial burden.

My bottom line is if you are small, limited capital or limited low-cost capital, have or see the potential for business slow down, then you can probably honestly certify that economic uncertainty makes the loan necessary. We are at 15% unemployment and rising so who knows what will happen.

New Clarification

The Paycheck Protection Program Frequently Asked Questions added two key clarifications in Question 46 that can help businesses that are trying to decide if they should keep the loan. Here is the language:

Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?

Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates,20 received PPP loans 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. SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This 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 the compliance effort may yield higher returns. Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.

Audit Likeliness

That answer is a lot to process so here is my takeaway on audits. If you loan was more than $2 million, you are at a high risk of being audited. If it was under, the likelihood is low. That shouldn’t be used as a justification for exploiting this program, but a guide for how you may need to defend it.

Should you need to defend the necessity of the loan, I would have:

  • Financial information indicating the need
  • Supply chain information indicating the need
  • Industry information indicating the need
  • Anything else that can prove the need

If you have a good argument and can back it up with documentation and\or research, you should be good even if you haven’t experience sales declines yet. 

Consequences of Ineligibility

More importantly for the latest guidance was the potential consequences. Again I will summarize what was stated:

  • If audited and the SBA determines you lacked a need for the loan, they will ask you to pay it back
  • If you pay it back, there are no further consequences

Bottom Line

If you are on the fence about keeping your PPP loan, but feel like you have a good argument about eligibility then keep the loan. Use it wisely knowing that you may not be forgiven and will have to pay it back early.