A Paycheck Protection Program (PPP) loan default is treated just like any other SBA loan guaranteed by the government to a lender (under the 7A program, the government secures 85% of a loan to the bank; for PPP loans, the government secures 100% of the debt to the bank). PPP loans are unsecured and not personally guaranteed by the borrower, so the ability of the bank to seize assets is more limited than traditional business bank loans. So what happens when a borrowing business can’t or won’t repay the loan?
First, the SBA will repay the lending bank for the loan, per the SBA guarantee. Then, the SBA will try to recover any funds from the borrower, including by retaining tax refunds due to the business. The business in PPP loan default will also not be allowed to do business with the U.S. government in the future.
For more information on your PPP loan, including the forgiveness and repayment processes, contact a ShindelRock tax professional .