The Treasury and SBA have issued a new directive under the FAQs that highlight and provide additional guidance related to eligibility and required certifications for these loans. As part of the initial application for the loan borrowers were required to certify, among other requirements “the current economic uncertainty makes this loan necessary to support the ongoing operations of the business.” Given the exigent circumstances and immediate needs for many businesses, the program launched with little in terms of expanded guidance and a lot (such as the actual application itself) changing on the fly and as a result little was available in terms of the requirements related to this certification until now. The updated guidance may require certain borrowers to reconsider their PPP Loan.
On April 23, 2020 the SBA updated the FAQ to include Question 31, which discusses if businesses owned by large companies with adequate sources of liquidity are eligible for PPP Loans. The guidance then reminds borrowers of the certification they made regarding uncertainty and now includes that borrowers should assess their economic need for a PPP loan. Borrowers should take into account their current business activity and their ability to access other sources of liquidity to support their operations in determining the economic uncertainty and thus the need for a PPP loan. While the FAQ specifically mentions “large companies” it is not unreasonable for all companies or organizations that received PPP Loans to re-evaluate their loan request in light of this new guidance. We are recommending that companies and organizations that have applied for and received a PPP loan go through the process of evaluating and documenting their thought process behind their determination of economic uncertainty. In performing this evaluation, you should consider:
Unfortunately, like much of the PPP Loan guidance, this comes late in the process and does not include any bright-line empirical tests or guidelines, but rather a broader facts & circumstances analysis. As part of the “new” required evaluation it is prudent for many businesses and organizations to evaluate and document their need for the PPP Loans.
There is little doubt we currently are operating in a period of high uncertainty overall as we get used to this new normal. In the NY Metro area, we know that we are on PAUSE until at least May 15, 2020, which would mark nearly 2 months of fully or partially suspended physical operations and telecommuting and the prospect of more to come. As we get further into this situation the more normal it may feel and the less economic fear many of us may have, however, thinking back to the period when the PPP Loans first came out it was not much of a stretch for many businesses or organizations to feel they were facing significant uncertainty, making their original certification in good faith. The updated guidance has given more clarity as it relates to economic need and uncertainty with respect to these loans, which may change a borrower’s understanding of the certification. If a borrower determines that under this new guidance, they can no longer rely on their good faith certification, they have until May 7, 2020 to return the PPP Loan without consequence.
Edward McWilliams, CPA
Ed is a Partner in the firm’s tax and business advisory practice focusing on providing services to middle market private companies across different industries as well as to early stage startups. Ed has over a decade of experience providing tax and business consulting services to these companies of different sizes and across different industries, bringing a broad and diverse knowledge base and strategic solutions to the many complex issues that businesses face.