The Los Angeles Lakers, one of the most valuable sports franchises in the world, returned to the front page this week despite the suspension of the NBA season, and there are important repercussions for participants in the Paycheck Protection Program (“PPP”). In response to reports that the Lakers received a $4.6 million PPP loan but would return the money, U.S. Treasury Secretary Steven Mnuchin called the loan “outrageous” and said that the Lakers “would have had liability” had the loan not been repaid. The Treasury Secretary went on to say:
- All PPP loans in the amount of over $2 million would be subject to a full audit before any decisions are made on loan forgiveness.
- If borrower certifications regarding the loans being necessary to support ongoing operations are false, there will be stiff penalties.
- Borrowers may face criminal liability if they receive PPP loans but do not comply with program guidelines.
Last week, in the face of criticism over large enterprises obtaining PPP loans, the U.S. Small Business Administration (“SBA”) issued guidance establishing a safe harbor for borrowers that do not satisfy the PPP economic need test. Specifically, for those borrowers that applied for a PPP loan prior to the guidance but elect to repay the loan in full by May 7, 2020, the SBA will deem their certifications of economic need to have been made in good faith.
Based on SBA reports as of April 16, 2020, in the first round of PPP financing, over 1.6 million loans were approved for an aggregate amount of over $342 billion, with approximately 26,000 of those loans being greater than $2 million. On Friday, April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act became law, increasing the amount authorized for PPP loans by $310 billion.