As a result of the publicity surrounding several large public companies receiving large Paycheck Protection Program (PPP) loans and the firestorm it created, we've been asked by a number of our customers whether we think they should return their PPP funds during the safe harbor period (ending May 14.) Obviously, we are not in a position to tell our customers the right moves to make for their particular situations. However, we would like to remind our customers of some important goals of the program and why main street businesses were encouraged to apply in the first place. 

The program was designed primarily for job retention. When the PPP was rolled out and opened up for small businesses to apply on April 3, 2020, the business climate and outlook for many main street businesses as a result of stay-at-home order was very uncertain and potentially very volatile. Businesses were trying to sort out what the impact was likely to be for their operations. Would they have to scale back operations, lay off employees, close certain business lines or find other ways to tighten their belts to weather the storm? 

The Paycheck Protection Program seemed to arrive just in time to help provide a safety net that made those decisions a little easier. Those funds and the potential to have the debt forgiven gave the needed assurance that helped those businesses decide to keep their staffs intact and work through their expected challenges. The environment created for applying for these loans was extremely frantic, as it was clear the funds would likely get used up quickly, so if applications weren't submitted immediately, there would likely not be enough funds to go around. Decisions to apply had to be made in a hurry. 

In light of this urgency, SBA continuously reminded banks and borrowers that the guidance was evolving as the program was amended. However, we were told that all parties could rely on the guidance provided at the time of application to govern. This statement gave all of us comfort, knowing that new direction wouldn't negatively impact previous decisions. It soon became clear to us, as we worked with many anxious clients, that the approval of their PPP application was a big difference-maker for them. We heard stories of business owners being able to stand in front of their employees and tell them there was job security for the time being. Many of the stories we heard were very heartwarming and emotional. It seemed a lifeline had been extended. 

Then along came the whole Ruth's Chris Steak House/Shake Shack debacle, where we all learned that several large public companies applied for and received $10 million PPP loans. The SBA reacted quickly and put out guidance encouraging those companies to return the funds and even created a "Safe Harbor" period by which they could return them. Several did return the funds, but in the process of clarifying the guidance for this situation, it caused many main street businesses (that the program was clearly designed to help) to start second-guessing their decision to apply for and accept the funds in the first place. 

Were they going to get audited by SBA and perhaps even penalized for taking the money? While we realize everyone was required to certify that, "Current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant," what did that really mean? Did it have to mean that lines of credit were fully drawn and the checkbook was empty? Or could it mean that this pandemic was likely to impact the business adversely and the owners didn't know if they'd be able to keep staff intact without layoffs? We think the latter was the intent.

We've talked with a lot of customers, SBA officials and members of Congress on this topic. The general sense we get is that good faith applications based out of economic uncertainty will not be second-guessed by the SBA, regardless of the appearance of their checkbooks or what kind of line of credit availability was present. The program was intended to create less economic uncertainty for small businesses across the country and hopefully result in fewer unemployment claims. We believe the program is achieving its intended goals.

We realize that tax considerations were modified after the program was rolled out that are impacting some of the decisions regarding keeping the money. But for the most part, we believe almost all of our customers will keep the money and will be just fine. We do encourage you to put together a brief narrative on why you applied for the money; why it was essential to your business operations and how it's positively impacted your business. We think this statement will help you feel more confident in your decision to use this valuable tool as it was designed -- to help Main Street businesses get through an extremely challenging time. And as always, reach out to your banker with any questions. We are here to help.

Written by Dave Coggins

Dave is Executive Vice President - Chief Banking Officer of Investors Community Bank. He has been with the bank since 2009 and has nearly 40 years of lending and leadership experience, including 10 years as president of Business Lending Group and 24 years in various lending and leadership roles in the Farm Credit System. Dave holds a Bachelor’s Degree from the University of Wisconsin-River Falls. He is actively involved in many community/professional organizations, including serving as a board member and finance committee member for Progress Lakeshore and a member of the Wisconsin Bankers Association Government Relations Committee. He is also a recent past chair of the WBA Ag Bankers Section and a member of the ABA Ag Banking Committee.

Some content requires Adobe Acrobat Reader to view.