The latest update, in the form of new FAQs, was published by the SBA and Department of Treasury on May 5, 2020. Click here to access the FAQs page. Question 31 provides needed clarification for businesses regarding qualification for necessity of a PPP loan. The answer, in part, declares,
“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 ‘[c]urrent 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.”
Borrowers are reminded to carefully review the required certification on application forms. As we’ve discussed this with different clients and reviewed both the FAQs and some other resources provided by the SBA and Department of Treasury, there are significant concerns and uncertainty associated with the phrase “…ability to access other sources of liquidity sufficient to support their ongoing operations…”
The SBA is allowing businesses who have received PPP loans but desire to return the money due to reconsideration of need to return the funds without any penalty by providing “safe harbor.” The SBA has extended the deadline to repay those PPP loan funds until May 14, 2020 (the previous deadline was May 7, 2020). Any repayment made by May 14, 2020, “will be deemed by SBA to have made the required certification in good faith.”
The Department of Justice, on the same day, released information regarding the first businesses to be charged with fraudulently seeking PPP loans. Assistant Attorney General Brian A. Benczkowski stated, “Every dollar stolen from the Paycheck Protection Program comes at the expense of employees and small business owners who are working hard to make it through these difficult times. The Criminal Division is committed to working with our law enforcement partners to root out abuse of the important relief programs established under the CARES Act.” Part of the CARES Act created an Office of Special Inspector General of Pandemic Recovery to “conduct, supervise, and coordinate audits and investigations” of possible fraudulent activity relating to any of the CARES Act programs.
If your business can indeed provide documentation on the need to obtain a PPP loan, you must remember that these funds can be used for payroll costs, rent or mortgage payments, utilities during the 8 weeks following receipt of funds. Though these fund may be eligible for forgiveness, the SBA has not provided further guidance regarding loan forgiveness. Yet.
The best way to examine any concerns you may have about eligibility, certification, or repayment is to make an appointment to discuss this matters with your attorney.