Wednesday, July 22, 2020

Insurance for PPP loans

My first thought was that insuring against the possibility that the Small Business Administration may find that a business was not eligible for a loan it received from the Paycheck Protection Program, or PPP,  was a little . . . off.  Sure, regulations about eligibility for the loan itself and for loan forgiveness seem to change every day, but how can you insure a business against receiving funds that it should not have received?  I don't want to minimize the importance of those funds in keeping many businesses afloat during the pandemic, but still, the insurance struck me as counterintuitive.

As with so many things, the reality is a bit more complicated.  Businesses applying for PPP funds are required to certify that the funds are necessary to support their ongoing operations.  But what does "necessary" mean?  Despite the uncertainty, the SBA may review loans of a certain size -- currently, $2 million or more -- for whether they actually were necessary.  It is empowered to impose fines and treble damages for statements that are found to be false and misleading.

The purpose of insurance is to protect against uncertainty.  There is enough uncertainty in the PPP rules for it to make sense that businesses consider insuring against the possibility that they will have to repay those funds.

Thanks to Kelly Beaudoin in the Manchester office of HUB International for letting me know about this insurance. 

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