5 Reasons To Return Your PPP Loan

5 Reasons To Return Your PPP Loan

5 Reasons To Return Your PPP Loan

This article was updated June 5, 2020 to reflect changes in the Paycheck Protection Program Flexibility Act of 2020.

The Paycheck Protection Program (PPP) offers a loan that may be completely forgiven if funds are spent correctly—mainly on payroll. Some small businesses have applied for it as a lifeline only to discover it’s not the perfect fit for their business and may want to return their PPP loan.

Here are 5 reasons you may want to pay back your PPP loan right away:  

1. You Won’t Likely Qualify for Forgiveness

One of the main appeals of the PPP is that the loan may be forgiven in full if proceeds are used properly. But the rules around PPP forgiveness are confusing and there are many remaining questions the SBA and Treasury have yet to answer. 

Here’s a comment a business owner named Jackie shared on the Nav blog: 

“I have received the ppp loan. As a school-age childcare provider, the business was shut down. I applied for the loan and advised my staff to sign up for unemployment while the loan process moved slowly forward. Now, I have the loan and many of my employees are receiving a $600.00 increment which allows them to collect more than if I pay them as usual. The school year has ended and I will not be hiring back until September.”

Some employers will discover they do not qualify for forgiveness and will instead be taking out a loan. While a 1% interest rate on any balance is attractive, the loans carry a two-year repayment period (five years for loans made after June 5, 2020), and in this period of economic uncertainty many business owners are wary about taking on debt. Returning the funds may feel like a safer option. 

Update: The PPP Flexibility Act which became law on June 5 2020 makes it easier to obtain forgiveness. It gives employers up to 24 weeks to spend funds and still be eligible for forgiveness. It also allows employers to avoid a reduction in forgiveness in certain circumstances, including if they are “able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID– 19.”

2. You May Lose Employees Anyway

The primary purpose of PPP is to help employers keep employees on their payroll so they can be ready to return to work when business resumes. But some employers are finding that difficult to achieve, due to financial concerns, health concerns or both. 

Traci shared her dilemma in response to a Nav article about PPP loans

“My employees are all part time – and with the PUA and unemployment, they are making double being on this assistance. I was just approved for a PPP loan and no one wants to come back to work. What do I do? HELP!”

Some employers have reported their employees stand to make more through Pandemic Unemployment Assistance than they would if hired back and paid using PPP funds. Other employees are afraid to come back into a workplace where they may be exposed to coronavirus. 

And of course some workplaces are closed, or business is so slow that employers can’t find meaningful work for their employees to do anyway. It’s confusing and frustrating to employers to pay their workers not to work, or to try to find something for them to do.

If you offer employees their job back but they don’t accept the offer to come back to work, they may lose unemployment benefits. (Note they may qualify for Pandemic Unemployment Assistance under specific circumstances, even if they do not return to work.) Even if you do bring them back and they are making less money than they would have on unemployment, they may be resentful enough to look for another job in the future. It’s a tough decision many employers are facing— especially those with lower-wage employees. 

3. You’d Rather Get the Employee Retention Tax Credit 

In addition to other programs, the CARES Act created the Employee Payroll Retention Tax Credit. Employers whose operations were fully or partially suspended due to government orders, or who experienced a major decline in receipts, may be eligible for a employee retention tax credit against Social Security wages for up to 50% of $10,000 in qualified wages (including health plan expenses) paid after March 12, 2020 and before January 1, 2021.  

Eligible employers can get immediate access to the Employee Retention Credit (ERC) by reducing employment tax deposits they are otherwise required to make or even get an advance payment from the IRS if the employer’s employment tax deposits are not sufficient to cover the credit.

But employers can’t get both a forgivable PPP and this tax credit. Some employers who applied weren’t aware of the Employee Retention Credit, or didn’t discuss the two options with their accounting professional before they applied for PPP. 

In its latest guidance Treasury has stated:

“An employer that applied for a PPP loan, received payment, and repays the loan by the safe harbor deadline (May 14, 2020 – note: later updated to May 18, 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.”

If you have any questions about the ERC and whether it is a better fit for your business, now is the time to consult your accounting professional. 

Update: The PPP Flexibility Act permits employers and the self-employed that received a PPP loan to also qualify for payroll tax deferment. This allows employers to defer the deposit and payment of the employer’s share of Social Security taxes and self-employed individuals to defer payment of certain self-employment taxes. (This is different than the Employee Retention Tax Credit.)

4. You Aren’t Sure Your Business Will Survive

A survey by Thryv and America’s SBDC found that slightly over half of business owners surveyed said they were likely to recover completely or 75% of their business one year from now and 7% do not think they will survive at all.

“My restaurant was just notified we did receive the PPP today but our lease is over July 1st and we need to relocate the restaurant. We are not sure when we will be able to open for sure. Should we not take the PPP loan offered? We are not sure what to do because we can’t start using it right away for 8 weeks in a row.” – Jennifer

If you cannot qualify for forgiveness, it might make more sense to return your PPP loan, rather than wind up with additional debt. Granted, it’s a pretty attractive loan. Unlike other SBA loans, PPP loans carry no personal guarantee, no collateral is required, and are non-recourse loans if the funds are used for authorized purposes. (See The CARES Act section 1102.) 

But what if you never reopen your business and can’t or don’t repay a portion of the balance in authorized ways: could you be on the hook personally for that balance? It seems entirely possible. Even if you aren’t, defaulting on a federal loan of any type is serious business. At a minimum, it typically means you aren’t eligible for any other federal loans for at least several years. 

Self-Employed PPP Loan Forgiveness Calculator - Estimated your Forgivable Amount

Self-Employed PPP Loan Forgiveness Calculator - Estimated your Forgivable Amount

Use this calculator if you are self-employed with no employees and filed or will file Schedule C for 2019.

Get Estimate

5. You Didn’t Really Need the Funds

When applying for PPP, the CARES Act requires borrowers to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Initially that didn’t seem to be a huge deterrent as most businesses are facing economic uncertainty, but after a backlash due to a number of publicly traded businesses who obtained PPP loans, the SBA has indicated it will audit businesses that received more than $2 million in funding in addition to “other loans as appropriate.” 

What are they looking for? According to Treasury guidance

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…

In the Interim Final Rule published in the Federal Register on June 1, 2020, Treasury and the SBA stated loans of any size may be reviewed by the SBA. Specifically it says: 

For a PPP loan of any size, SBA may undertake a review at any time, at SBA’s discretion. For example, SBA may review a loan if the loan documentation submitted to SBA by the lender or any other information indicates that the borrower may be ineligible for a PPP loan, or may be ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower.

And it goes on to say: 

If SBA determines that a borrower is ineligible for the PPP loan, SBA will direct the lender to deny the loan forgiveness application. Further, if SBA determines that the borrower is ineligible for the loan amount or loan forgiveness amount claimed by the borrower, SBA will direct the lender to deny the loan forgiveness application in whole or in part, as appropriate. SBA may also seek repayment of the outstanding PPP loan balance or pursue other available remedies.

6. You Applied Fraudulently

If you saw this program as a gold rush of free money and decided to take advantage of it by filing a false application, you may be in trouble. Investigations are already starting. The Justice Department has announced it has charged two businessmen in the District of Rhode Island with allegedly filing bank loan applications fraudulently seeking more than a half-million dollars in PPP loans. If you applied fraudulently you’ll likely want to return the funds— and call a lawyer. 

How To Return PPP Funds

If you have already received PPP funds and changed your mind, talk with your lender. There is no prepayment penalty if you pay back one of these loans early though interest will accrue.


This article was originally written on May 8, 2020 and updated on June 5, 2020.

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Gerri Detweiler

Education Director for Nav

Credit expert Gerri Detweiler is Education Director for Nav. She has more than three decades of experience in consumer credit education, has been interviewed in more than 3500 news stories, and answered over 10,000 credit questions online. Her articles have been widely syndicated on sites such as MSN, Forbes, and MarketWatch. She is the author or coauthor of five books, including Finance Your Own Business: Get on the Financing Fast Track. She has testified before Congress on consumer credit legislation.

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31 responses to “5 Reasons To Return Your PPP Loan

  1. I received a PPP loan in April 2020 for our S-Corp small business. It is just my wife and I working for the company and uncertainty at that time drove us to apply for the loan.

    Although we applied the proceeds accordingly, it has become apparent that we could have survived without the loan. I do not want to apply for forgiveness now, but now my banker is telling me “The forgiveness is part of the program…it is locked in”. I would like to keep the loan and just start making payments when required (Around August 2021 I think) for the two year period. Am I missing something? I don’t have to apply for forgiveness?

    1. Lenders don’t want to keep these loans on their books so I am not surprised by that reaction. But I’m not aware of a requirement to apply for forgiveness. I’m not sure what to suggest given the lender is telling you that you must apply for forgiveness.

  2. I received ppp loan as one owner and no employee in 6/24/20 and also working with a group home and due to my age and covid19 I have to file for unemployment in May and did not received until September 1st, so does it have to have anything to do with the ppp, do you think I should return the ppp which I really want to return. I called my lender but they never get back to me. My business as a delivery is not that making it and will not need the ppp money. Help

  3. If i applied for the ppp loan n got approved, got the money sent to my acct, n hadn’t used it, then applied for self employed unemployment, n receive 4 checks… n got the ppp money taken out of my acct, can I stop my unemployment n applied again for the ppp instead?

  4. I applied for the PPP loan but I was approved for unemployment well before the loan was distributed to me. By the time I received the funds, I was already collecting unemployment and continued to do so until returning to work on the 22nd of June. My question is now that I’m back at work, am I able to distribute the payroll portion of the funds to myself because due to restrictions, I’m only able to see approximately half of my clients per day that I saw prior to the shutdown. Although I worked all week, I haven’t distributed any of the income to myself as payroll because it’s all going to bills to catch up.

  5. Hi I have applied for a ppp loan to keep my cleaning business up and running during this pandemic and hard times we all experiencing. I also got approved and even received an email saying the funds will be deposited in 2-3 business days to my account. Anyway my bank account was closed on that same day due to monthly fees I was charge and NSF fees. So my question is what happens next?how do I receive that money? Do I get a check in the mail? Can I reroute or redirect it to a different account or open new account? because I really need the funds to keep business open.

  6. I applied for the ppp as a sole proprietor and unemployment was terrible and didn’t come through/ but they both came at around the same time but I would rather have unemployment than the ppp. My question is: Can you just use the loan for other things (not payroll) and pay it back (if you pay it back do they care what you use it on, I want to make sure to do it right) or should I give it back since I’m getting unemployment finally? (Id rather have unemployment)

    1. Deejay – We haven’t seen specific guidance on this but EIDL can be used for expenses other than payroll. We’d recommend checking with your state unemployment agency.

  7. Hi. I am self employed in a LLC Partnership. Our business had to shut down due to covid. I applied for and eventually received an eidl loan. I also applied for and eventually received unemployment dating back to mid march. I’m still receiving unemployment as we haven’t been able to open back up yet. My accountant said we could also qualify for PPP loan so I just applied today June 25th for that. Obviously I would have to stop unemployment if I receive PPP loan. My question is will unemployment come back and say they want money back if and when they find out I accept PPP finding, even if I stop unemployment at the time I receive PPP funds? Thanks.

  8. We were approved for our loan, and received our loan, but our business actually soared thru this crisis (actually surpassed last year’s sales). We have ten employees, and actually hired another (didn’t lay anyone off). Am I required to pay back the loan?

  9. Hello Gerri!
    I have a problem with the PPP loan and I didn’t realize I couldn’t get unemployment also. I’ve already paid myself for the PPP loan as a sole proprietor but I found out you cant have both.
    I haven’t received money from Unemployment yet. I’m a travel agent and I know that the business is so slow and cancelling cruises up to Sept and beyond. Can I give back the PPP loan?
    Is the PPP loan a one time thing? My loan officer is no help! I do use a schedule C

    1. Paula, there is no prepayment penalty if you want to pay back the PPP loan early.

      The guidance has been extremely sketchy on PPP versus unemployment. My guess is that if you took a PPP loan and paid it back right away and didn’t use it for payroll then you don’t have to report that as income. But that’s my guess – I can’t point to any guidance and I’m not an unemployment expert.

      I’d imagine your loan officer is dealing with the same limited guidance as everyone else. (Unemployment versus PPP versus EIDL is one area where I feel they have not done a good job delivering helpful guidance.)

  10. As a sole proprietor, I applied for a ppp and received a distribution. I realized I made a mistake, counting myself (owner) as an employee so my ppp was calculated at my net profit of $128k, rather than the $100,000 cap. Should I sort this out when I apply for forgiveness or consider other options

    1. Hello James i made the same mistake!!!
      So were you able to return the PPP loan without penalty or any further issues????

  11. My boss got the loan and determined he should not have been approved. Wells Fargo (the lender) is UNABLE to take the money back. The loan was issued with no repayment information and two days of phone calls have not provided any answers. The return deadline is tomorrow. A poorly planned, poorly executed loan program.

  12. Is returning the PPP loan by May 14th the same as just going into my back account and paying the loan off via “paid balance”?
    I do not have to notify the SBA about it?

  13. If a PPP loan cam across finally after unemployment started for a self employed worker can they just give back the loan and keep the unemployment since at the time of application for the loan there was no unemployment being paid and no word on for sure if it would be given at all.

  14. Hi, I’m a CEO for a german company in Charlotte, NC and we employ about 100 people. We applied for the PPP loan and received the money. Unfortunately the rules have changed constantly since and we basically have decided to return the money. The questions about being actually entitled to keep the money and use it what it was intended for (payroll and utilities) got cloudier by the day and so we decided to give it back. As a consequence, we will have to lay off approx. 50 people by the end of this week. The PPP loan would have avoided all the stress to the company and employees. Too much politics around a good idea killed it. Many honest companies I know got loans and are now giving it back due to the same reason. Sad but true.