The Paycheck Protection Program (PPP) is a U.S. Small Business Administration (SBA) guaranteed loan designed to help small businesses keep their workforce on the payroll during the COVID-19 crisis.  The program provides low interest loans with quick access to funds and without requiring a personal guarantee.  If the proceeds received from these loans are used for payroll, rent, mortgage interest or utilities and the business maintains all of its employees on the payroll for a period of eight weeks, the loan will be forgiven.

In conjunction with applying for the PPP, its applicants are required to certify many statements including the following.

  • Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.
  • The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud.

Since the SBA started accepting applications on April 3, 2020 it has continued to issue additional guidance addressing the many aspects of the PPP.  Recent guidance has many businesses questioning whether or not they still meet the original criteria for the loan, especially the two certification statements outlined above.  Most recently, the SBA issued FAQ #31 and FAQ #37.  This guidance makes it clear that all businesses must consider the following when initialing the certification statements.

  • FAQ #31: “All borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary.  Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  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.”

If a business is a recipient of PPP loan proceeds, has alternative access to capital and no longer feels it can meet the certification statements included in the loan application, the SBA is allowing that business to pay back the loan in full by May 14, 2020, with no consequences.  By repaying the loan by this date, the SBA will deem the required certification to have been made in good faith, avoiding civil and/or criminal implications.  Please note that the SBA has announced that it will be conducting a full audit of PPP loans made in amounts over $2 million, in addition to other loans as appropriate, to ensure the borrower’s legitimate economic need before those loans can be forgiven.

In order to preserve Congress’s initial intent for the PPP, we recommend all PPP borrowers review the eligibility certification to determine how this recently issued SBA guidance could impact your organization.  If you decide to return the PPP loan proceeds, there are other ways to preserve your cash flow, including payroll credits and deferrals.

We will continue to update you as we get more information on Coronavirus-related legislation and guidance that may impact you. Continue to check back here for the most up to date tax information and changes in response to Coronavirus. If you have more questions contact an MCB Advisor at 703-218-3600 or click here. 

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