Posted May 6, 2020

Paycheck Protection Program (PPP) loan applicants certified that “Current economic uncertainty makes this loan request necessary to support the ongoing operation of the applicant.” Early in the process, this was understood to mean the pandemic had caused, or was expected to cause, economic hardship, including reduced revenue or operations. The CARES Act specifically stated that the general SBA “access to capital” rule was waived and all small businesses were deemed to be affected by economic injury.

The SBA has since added more responses to their Frequently Asked Questions (FAQ) document (click here). FAQ 31 added new tests not previously included in the CARES Act. Companies must now take 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.”

If a business has not faced liquidity problems and economic harm, it may not be considered a PPP-eligible borrower. Any borrower who applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 14, 2020, will be deemed by SBA to have made the required certification in good faith. If, after May 14, borrowers make this certification and it is not true, they could face criminal liability.  These new guidelines were implemented due to large businesses with “substantial market value” and access to capital markets receiving PPP loans. The repayment date was originally May 7, but was extended until May 14 by the SBA in FAQ 43. On May 13, 2020, the SBA published FAQ 47 and further extended the repayment date to May 18.

PPP borrowers will be preparing financial records to support the spending of PPP funds on payroll, mortgage interest, utilities and rent during their eight-week forgiveness period, as well as support for employee count and payroll levels being maintained at least a 75% level. They should also prepare analysis and projections of declines in business activity and lack of liquidity.

On April 28, 2020, Treasury Secretary Steve Mnuchin stated that PPP loans are subject to review.  Specifically, the SBA will authorize a review of all loans in excess of $2 million, in addition to other loans as appropriate, following submission of the borrower’s loan forgiveness application. Regulatory guidance implementing this procedure will be forthcoming.

Future newsletters will provide updated information. Please contact us with questions or to discuss your situation.