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The U.S. Treasury Department on Wednesday again provided new guidance for emergency loans meant for small businesses hurt by the coronavirus crisis, with officials saying that Paycheck Protection Program loans of less than $2 million won’t face heightened scrutiny.
“Any borrower that, together with its affiliates, 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,” said the last page of an updated guidance document posted on the department’s website.
The Treasury Department previously has noted that PPP borrowers had to certify to the Small Business Administration that the current economic uncertainty made their loan request necessary to support ongoing operations. It has said that it’s “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.”
Such warnings have led to the return of 61 PPP loans that were made to public companies, according to data as of Wednesday from analytics firm FactSquared. Borrowers face a deadline of this Thursday for giving back their forgivable loans.
About half of the roughly 400 PPP loans given to publicly traded enterprises were for less than $2 million, according to FactSquared’s data. The updated guidance suggests those loans don’t need to be returned.
A safe harbor for loans under $2 million “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,” the guidance document said.
“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” it added.
“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.”
In late April, Treasury Secretary Steven Mnuchin promised the U.S. government would audit PPP loans above $2 million, as he warned of “criminal liability” for false certifications. A committee from the Democratic-run House on Friday singled out five public companies and demanded they return their PPP loans.
Wednesday’s development was seen as a softening of sorts by some lobbyists.
“The pendulum on PPP necessity appears to have swung back and is critical guidance for VC-backed companies that are considering returning PPP money or whether to apply,” tweeted Jeff Farrah, general counsel for the National Venture Capital Association, which lobbies in Washington for VCs.
