(Bloomberg) -- The Trump administration said firms that took loans that they didn’t need from a small business aid program will be allowed to repay the money without legal consequences, reversing an earlier threat that the government could pursue them criminally.
New guidance issued Wednesday for the Paycheck Protection Program by the Small Business Administration and the Treasury Department also said that companies that took loans of less than $2 million will automatically be determined to have done so in good faith because they’re less likely to have access to other resources.
The SBA will review all loans above $2 million to check whether firms properly certified they needed the money. If the SBA determines the company shouldn’t have gotten the money, the loan won’t be forgiven and if the borrower returns it, no further action will be taken, according to the new guidance.
Assuming that loans of less than $2 million were taken in good faith will allow SBA to focus its resources on reviewing larger loans given the massive size of the program, the agencies said.
Last month, following a backlash after large firms swooped in and collected millions from the PPP program -- which was intended to cast a lifeline to small firms that didn’t have access to capital markets -- Treasury Secretary Steven Mnuchin had said that firms could face criminal charges for taking loans they didn’t need.
Meanwhile, borrowers who commit fraud in taking relief loans are already being prosecuted. The Justice Department last week brought the first criminal case related to the program when it charged two New England businessmen with fraud and alleged that their applications falsely claimed employees they don’t have.
The PPP program allows loans of as much as $10 million that can be become grants if proceeds are spent mostly on payroll for two months after they are received. It’s meant to keep workers employed and firms ready to re-open when state stay-at-home orders are lifted.
After firms such as Shake Shack Inc (NYSE:SHAK). and the Los Angeles Lakers got loans at the expense of mom-and-pop shops, SBA and Treasury issued guidance April 23 saying companies with “substantial market value and access to capital markets” would be unlikely to qualify. Borrowers had to certify on their applications that “current economic uncertainty makes this loan request necessary to support the ongoing operations” of the business.
Companies had been given until May 7, later extended to Thursday, to return loans without any penalty. (Shake Shack and the Lakers did return the money). But there was confusion about eligibility, and some firms said they returned their loans “out of an abundance of caution” even if they believed they qualified for it.
The SBA and Treasury haven’t disclosed how many companies have returned or canceled loans and in what amounts. Public companies have reported returning 61 loans worth $411 million as of Wednesday morning, according to data compiled by FactSquared.
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