Update #5 – Financial Impacts of Covid-19 Legislation
Last week the Small Business Administration (SBA) opened more funds for the Payroll Protection Program.
While glitches were experienced by many, applicants are expected to receive notification in the upcoming days and should pay attention to the NEW rules regarding loan forgiveness.
While glitches were experienced by many, applicants are expected to receive notification in the upcoming days and should pay attention to the NEW rules regarding loan forgiveness. The SBA issued a critical fraud warning to all PPP borrowers. We believe these were issued in response to abuse by large, publicly-held companies that received PPP loan funding in round one. Although the loopholes appear to have been closed for large companies, the same rules MAY apply to smaller companies.
The most notable and concerning update to the SBA FAQ’s is Question #31 which states:
In addition to reviewing applicable affiliation rules to determine eligibility, 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.
The SBA WILL be auditing down the road. As with all audits there will be subjectivity involved. All PPP loan recipients will need to provide documentation as to the necessity of the loan in addition to proving how all loan funds were used. Again we’ll update you later this week when, and if, the SBA issues loan forgiveness regulations.