Considering Returning Funds from the Paycheck Protection Program? Here’s What You Need to Know.

Article effective based on date written: May 11, 2020

For those seeking to return funds from the Paycheck Protection Program (“the PPP”) pursuant to the safe harbor, the deadline is fast approaching: May 14, 2020.  While this issue continues to generate publicity, the fear being generated is perhaps unfair to some returning funds for which they qualify and who were the aim of the program; however, given the unpredictable political and economic environment, businesses should understand its terms and how it may help to manage uncertainty in potential enforcement related to the PPP.[1]  Businesses should also understand how the decision to return PPP funding, whether before or after the safe harbor deadline, may impact their eligibility for other stimulus provisions under the CARES Act.  Making the appropriate decision is inherently fact-drive and, therefore, affected businesses should the business and legal risks of the PPP and this safe harbor with their advisors.


Why are businesses returning PPP funds?

The PPP was established by Congress to aid businesses affected by COVID-19 and related shutdowns.  One of the principal aims of the program was to incentivize employers to retain employees.  To be eligible for the PPP, businesses are required to certify that they meet certain size requirements, will use the funds for certain purposes, and that “current economic uncertainty makes this loan request necessary to support the ongoing operations” of the applicant.  The exhaustion of PPP funding within a matter of days and stories about larger companies like Shake Shack and the Los Angeles Lakers receiving this funding (instead of smaller businesses) caused many to question the administration of the program and whether many loan recipients actually satisfied these requirements.

In response, the SBA and Treasury released a series of guidance and public statements.  Government officials openly questioned whether some businesses receiving funding could certify that the loan request was necessary.  To put pressure on these businesses to reconsider their applications, the SBA indicated that every applicant receiving in excess of $2 million would be subject to review.  Within its Frequently Asked Questions,[2] the SBA indicated as follows:

  1. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP at the time of the loan application.[3]  Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary.  Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.  For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification… 


Emphasis added.  These statements, coupled with potential public relations backlash and statements from government officials indicating that businesses faced significant civil or criminal liability, caused many to at least reconsider whether the PPP funding was worth the related issues.


What is the safe harbor and how do I qualify?

Given this backdrop, the SBA sought to incentivize businesses to return funds from the PPP.  Without any formal guidance, businesses were concerned that a return of funds would simply subject them to the same level of scrutiny as other businesses who did not return funds.  Moreover, if funds were returned, businesses were concerned that this action could be construed as an admission of wrongdoing, which could lead to heightened exposure for civil or criminal liability.  To address these concerns, on April 28, 2020, the SBA published an interim final rule addressing this safe harbor.  At the time, the rule read as follows[4]:

Limited Safe Harbor With Respect to Certification Concerning Need for PPP Loan Request

Consistent with section 1102 of the CARES Act, the Borrower Application Form requires PPP applicants to certify that ‘‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’’ Any borrower that applied for a PPP loan prior to the issuance of this regulation and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. The Administrator, in consultation with the Secretary, determined that this safe harbor is necessary and appropriate to ensure that borrowers promptly repay PPP loan funds that the borrower obtained based on a misunderstanding or misapplication of the required certification standard.

To accommodate additional interest in this safe harbor and to facilitate consultation with advisors, on May 6, 2020, the safe harbor was revised to extend the relevant deadline.  In particular, the rule was changed (1) so that it did not apply only to those applying for a PPP loan prior to the issuance of the regulation and (2) to extend the return date to May 14, 2020.[5]  To qualify for the safe harbor, the funds received must be returned in full.

Importantly, this safe harbor technically only covers businesses that may could have been deemed ineligible for the PPP because of this particular certification.  That is, assuming PPP funds are returned by May 14, 2020, only the certification of “necessity” is deemed satisfied – not any other certifications.  If a business was not eligible for the PPP as a result of any other required certification(s) (e.g., size of the entity, payroll figures, date of operations, etc.), the safe harbor will not absolve them of potential civil or criminal liability.  Businesses failing to meet another of these certifications may consider returning PPP funds; however, such an action requires a different analysis beyond the scope of this article.[6]


If I do not return the funds, what risks does my business face?

Businesses that do not return PPP funding by May 14, 2010 face potential scrutiny of their loan.  Aside from a review of the “necessity” certification, officials have indicated that businesses should review their overall eligibility for the PPP and can expect heightened reviews upon application for loan forgiveness.  On April 28, 2020, Secretary of the Treasury, Steven Mnuchin, stated:  “I’m going to be putting out an announcement later this morning that for any loan over $2 million, the Small Business Administration will be doing a full review of that loan before there is loan forgiveness.”  Senator Elizabeth Warren and other congressional leaders have pushed for a “broad investigation into the program’s implementation.”

Consequently, the following guidance was published by the SBA in the Frequently Asked Questions associated with the PPP[7]:

  1. Question: Will SBA review individual PPP loan files?

Answer: Yes. In FAQ #31, SBA reminded all borrowers of an important certification required to obtain a PPP loan. To further ensure PPP loans are limited to eligible borrowers in need, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application. Additional guidance implementing this procedure will be forthcoming. The outcome of SBA’s review of loan files will not affect SBA’s guarantee of any loan for which the lender complied with the lender obligations set forth in paragraphs III.3.b(i)-(iii) of the Paycheck Protection Program Rule (April 2, 2020) and further explained in FAQ #1.15.

Although the government has made these broad claims, it is unclear how such enforcement can feasibly be implemented in such a quick timeframe.  For example, across both rounds of funding, the PPP resulted in the issuance of more than 3.8 million loans to small businesses.  Lenders made loans exceeding $2 million to 33,560 small businesses.  The aggregate value of loans exceeding $2 million aggregated to $124 billion.  Recent estimates show that the SBA only has several thousand employees, likely not many of which have the type of skillset necessary to perform efficient audits or refer matters for further enforcement.  It is also not clear whether the federal government will be able use resources from other agencies, such as the Internal Revenue Service, which likely have more familiarity with these topics but are already stretching resources.  These statistics underscore the substantial likelihood that all these borrowers cannot be audited or reviewed in any substantial sense.  Further, given the nature of the certification process for loan certification, it is not clear if officials will readily be able to make determinations based on required certifications.[8]

Even if it is unlikely that these enforcement efforts will be successful on a broad scale, it is likely that at least a few businesses will be significantly impacted.  Enforcement action may result not only in disallowance of loan forgiveness but could also include civil or criminal penalties.  For example, on the loan application for the PPP, the SBA warns applicants that “knowingly making a false statement” can be punishable under a number of federal statutes, including 18 U.S.C. § 1001 (false statements), 15 U.S.C. § 645 (false statements to the SBA), and 18 U.S.C. § 1014 (false statements to obtain loan).  Other federal criminal statutes such as 18 U.S.C. § 1341 (mail fraud), 18 U.S.C. § 1343 (wire fraud), and others could also apply.  Each of these statutes provides for significant potential incarceration and monetary penalties.  The Department of Justice has already publicized the prosecution of two individuals suspected of committing fraud related to the PPP.[9]  Taken together, a few of the most egregious actors are likely to be subject to substantial penalties to promote future general deterrence as widespread enforcement faces obstacles.

Aside from potential criminal liability relating to these certifications, those not returning funds under the PPP face other potential risks.  Legal prognosticators expect a significant amount of litigation related to the False Claims Act (31 U.S.C. § 3729) and the PPP.  Pursuant to that statute, whistleblowers can initiate suit against those submitting false claims to the government on behalf of the government.  If successful, the whistleblower receives a percentage of the funds ultimately recovered.  In this context, a disgruntled employee, competitor, or any host of other individuals could file suit against a PPP recipient by claiming that one or some of the certifications on the loan application were false.  To make matters worse for businesses, whistleblowers are potentially entitled to recover attorneys’ fees.  Even for those that correctly certified to their eligibility, a vague standard of “necessity” could lead to many nuisance settlements with these litigants.  Aside from these types of actions, PPP funding may be less valuable in light of potential bad publicity and restrictions placed on the use of funds.


Are there alternative programs to the PPP that can help sustain my business?

For businesses considering returning funds under the safe harbor, it is important that they be aware of other opportunities for needed funding under the CARES Act.  Some of these programs include, but are not limited to, Employee Retention Credits and the Main Street Lending Program.[10]  Returning funds pursuant to the safe harbor may be necessary for PPP participants to qualify for the Employee Retention Credits.[11]  Some of the additional important aspects of each program are as follows:

Employee Retention Credit

  • Incentivizes employers to retain employees through payroll tax credits
  • Credit is up to 50% of qualified wages paid per employee
  • Limited to $5,000 in refundable tax credits per employee (i.e., based on first $10,000 in wages paid)
  • Limited by the amount of credits received under the Emergency Paid Sick Leave Act
  • Businesses may qualify if subject to full or partial suspension due to governmental order or if gross receipts are substantially impacted
  • Credits are not available to any employer receiving a loan under the Paycheck Protection Program

Main Street Lending Program

  • Businesses must have 15,000 or fewer employee or had revenues of $5 billion or less in 2019
  • Loans have a four-year maturity with one year of deferred payments
  • Several different subprograms exist depending on the size and nature of the loan
  • Unlike PPP loan, these loans are full-recourse and not forgivable
  • PPP participants may also be eligible for this program, but proceeds cannot be used to re-pay an existing PPP loan
  • Maximum amount of loan dependent on outstanding debt and prior year EBITDA but generally range from $500,000 to $25,000,000
  • Program in the process of being implemented with expiration date of September 30, 2020
  • Rates based on 1-month or 3-month LIBOR plus 300 basis points
  • Origination and transaction fees apply
  • Borrowers must make “commercially reasonable” attempts to retain employees

For a discrete set of businesses eligible for the PPP, the Employee Retention Credits may actually be preferable to funding under the PPP.[12]  In addition, for employers that are too large to qualify for the PPP, the Main Street Lending Program provides certain credit features not typically commercially available to some businesses.  Employers considering returning funds pursuant to the safe harbor should consider these alternatives, as well as other available opportunities for credit.


What are some of the other changes that can be expected?

Given the ever-changing political and economic environment, guidance surrounding the PPP is likely to change on a day-to-day basis.  Businesses should continue to monitor updates on guidance specific to the PPP and its administration by the SBA, such as standards for loan forgiveness, updates to affiliation rules, interpretations of certification standards, and changes to enforcement-related staffing and budgeting.  Moreover, businesses should continue to watch for additions and modifications to existing assistance programs that will be implemented as government-related shutdowns persist.

These descriptions are intended for informational purposes only and should not be taken as legal advice on any particular set of facts or circumstances.  Rosenberg Martin Greenberg, LLP is experienced in all aspects of federal and state tax laws, legislative developments concerning the CARES Act, addressing prior compliance issues, white collar criminal litigation, and more.  For more information, please contact Brandon Mourges at 410.951.1149 or

[1] As indicated infra, those receiving funds under the Paycheck Protection Program are prohibited from claiming employee retention credits; however, the Internal Revenue Service has created an administrative exception for those returning funds from the PPP by the safe harbor deadline.  Those returning funds after this deadline will not be eligible for this exception and, therefore, businesses cannot wait until a loan forgiveness application is made to make this decision.

[2] Department of the Treasury, Payment Protection Program: Frequently Asked Questions (May 6, 2020) (available at:

[3] Interestingly, this statement appears to effectively negate much of the effect of the remainder of this guidance.  That is, since none of this guidance relating to liquidity and access to capital market was part of the “standard…at the time of the loan application,” it may be little more than a way for SBA to mitigate public backlash as it likely has no bearing on the enforcement standard.

[4] Small Business Administration, 85 Fed. Reg. 23,450, 23,451-23,452 (April 28, 2020) (to be codified at 13 C.F.R. Parts 120 and 121) (available at:  This rule is also referenced at the conclusion of FAQ 31 from the previously-referenced Frequently Asked Questions.

[5] See Small Business Administration, Paycheck Protection Program Requirements – Requirements – Extension of Limited Safe Harbor with Respect to Certification Concerning Need for PPP Loan Request (Docket No. SBA-2020-0026) (available at:  See also Department of the Treasury, Payment Protection Program: Frequently Asked Questions (May 6, 2020) (available at: (FAQ 43 indicates that the safe harbor deadline will be extended without need for application).

[6] Assuming that a business has incorrectly certified eligibility for the PPP, whether and how to return funding from the PPP – if ineligible for the safe harbor – requires the consideration of a host of other factors, such as the nature of the inaccuracies on the application, the level of due diligence in completing the application, when/how PPP funding was used, the history of the applicant and its owners, the enforcement environment, etc.  For these businesses in particular, an attorney should be consulted to reviewed available options and associated risks.

[7] Department of the Treasury, Payment Protection Program: Frequently Asked Questions (May 6, 2020) (available at:

[8] Section 1106 of the CARES Act requires documentation of certain items in order to qualify for loan forgiveness; however, the standards required for these certifications is still quite vague and guidance has yet to be provided as of the date of writing.

[9] Department of Justice, Two Charged in Rhode Island with Stimulus Fraud (May 5, 2020), available at:

[10] Unfortunately, access to Emergency Impact Disaster Loans has been temporarily halted to all but certain agricultural businesses as a result of unprecedented demand and a significant backlog of outstanding applications.  See Small Business Administration, SBA to Make Economic Injury Disaster Loans Available to U.S. Agricultural Businesses Impacted by COVID-19 Pandemic (May 4, 2020), available at:

[11] As indicated infra, employers receiving a covered loan under the Paycheck Protection Program are statutorily not eligible to receive employee retention credits.  In order to accommodate certain businesses returning funds from the PPP pursuant to the safe harbor regarding the “necessity” certification, the SBA and Internal Revenue Service have issued guidance indicating that those businesses will be deemed eligible nonetheless.  Pursuant to FAQ 45 of the Frequently Asked Questions to the Paycheck Protection Program:  “An employer that applied for a PPP loan, received payment, and repays the loan by the safe harbor deadline (May 14, 2020) will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit. Therefore, the employer will be eligible for the credit if the employer is otherwise an eligible employer for purposes of the credit.”  The Internal Revenue Service has issued similar guidance in the form of Frequently Asked Questions.  See COVID-19-Related Employee Retention Credits: Interaction with Other Credit and Relief Provisions FAQs at FAQ 79 (May 7, 2020), available at:

[12] Brandon Mourges, Did Funding for the Paycheck Protection Program Run Out on You? (April 23, 2020), available at: