Since the inception of the Payroll Protection Program (PPP), more than $524 billion in loans have been applied for and funded by Small Business Administration (SBA) affiliated financial institutions in communities across the United States. To ensure compliance with the rules set forth in the application and underlying regulations, the SBA and Department of the Treasury announced on April 28 that the SBA would review all PPP loans of more than $2 million, “in addition to other loans as appropriate.”
This notification reiterated to many loan recipients the importance of documenting the bona fide need for the loan and the importance of the certification process embedded within the PPP loan application. Recipients have been required to certify that the PPP loan was “necessary to support the ongoing operations of the Applicant.” Loan applicants were looking for guidance for the interpretation of this language. Beginning on April 3, the SBA and Treasury released a series of helpful Q&As related to the PPP. Two recently published Q&As, numbers 31 and 37, directly addressed the ability of the loan applicant to make the certifications in good faith.
When documenting their organization’s circumstances, loan recipients should carefully consider the following to ensure they can “in good faith” make the certifications required in the loan application:
- At the time of the loan application, absent the PPP funds requested, could the borrower access other sources of liquidity “sufficient to support…ongoing operations in a manner that is not significantly detrimental to the business?”
- Did the economic conditions present at the time of the application make the request necessary to support the organization’s ability to sustain ongoing operations?”
- Is the applicant’s business entity part of a larger conglomerate of companies that would result in more than 500 employees if the affiliation rules were appropriately applied?
If an applicant that has received PPP funds determines it cannot make the certifications in good faith, it will have until Thursday, May 14, according to the SBA and Treasury, to return the loan proceeds without fear of penalty. (The original deadline to return loan proceeds was May 7.)
The Q&A guidance published thus far may help clarify questions that still surround the PPP loans.
PYA has established a COVID-19 information hub to help you sort through the quickly changing guidance. If you have any questions about this development, or other COVID-19-related matters, contact one of our PYA executives below at (800) 270-9629.
