May 4, 2020
To our clients and community,
Recent news regarding the Paycheck Protection Program (PPP) related to the Small Business Administration’s (SBA) scrutiny of businesses applying for a loan has raised serious concerns for many companies. We want to keep you updated on these developments to help you as you consider your options before May 7, 2020.
As funding for CARES Act PPP loans began to reach small businesses, new loan qualification and forgiveness guidance was released by the SBA in the form of Frequently Asked Questions (FAQ’s) on April 23, 2020. The most notable is FAQ 31 which in part, cautions businesses owned by large companies, through legal liability such as charges of fraud, to certify a PPP loan is necessary taking into account their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to their business. Then, April 28, 2020 the Treasury issued FAQ 37 which clarifies that private companies with adequate sources of liquidity to support the business’s ongoing operations fall under the same guidance provided in FAQ 31. Although the need for certification isn’t new, the “ability to access other sources of liquidity” was not clearly defined in the FAQs leaving all businesses, and in particular subsidiaries, questioning if the certification provided during their loan application process was valid.
Unfortunately, operating within a global pandemic may further complicate a business’ ability to fully assess their access to other sources of liquidity for the purpose of retaining employees in the US, and the SBA has not provided enough detailed guidance to assist with this determination with 100% certainty. It is completely understandable that businesses are feeling frustrated as they struggle to retain their valued employees while lacking clear guidance regarding the PPP loan which could provide immediate relief to their US workers.
Below are a couple of suggestions for your business during this time of uncertainty:
For businesses that already received funding, the SBA is providing an opportunity for you to reconsider your previous certifications and simply return the proceeds by May 7, 2020. This act will be deemed by the SBA as the business having made the required certifications in good faith- no questions asked. As with other CARES Act programs, updates and clarifications are released frequently. With this significant date approaching, we are hopeful that the SBA will release further guidance to make this decision clear for potential borrowers. If you are not confident that you can complete the certification in good faith, then you may want to prepare to return the funding by May 7, 2020 while waiting for more clear guidance from the SBA early this week.
For businesses that have already determined that you can certify in good faith the current economic uncertainty makes this loan necessary to support ongoing operations given your knowledge of access to other sources of liquidity sufficient to support your ongoing operations in a manner that is not significantly detrimental to their business, then the next step is to prepare your supporting documentation. Borrowers should be prepared to justify their rationale for the loan application certifications and be able to assert, in good faith, that the PPP loan was needed.
Finally, we encourage you to share any concerns you may have with your corporate attorney who is familiar with your business’ unique circumstances and may assist in evaluating your options and corresponding legal implications.
We will continue to monitor the government’s release of information and provide updates as they become available.