PPP Economic Uncertainty Clarification Update Gets Extended Repayment Deadline

On April 23, the SBA updated their Paycheck Protection Program (PPP) FAQs with question #31,  clarifying that borrowers would have to be able to certify that the loan was necessary based upon current economic conditions and set May 7, 2020 as a repayment safe-harbor deadline for those who applied prior to April 23. The original deadline has been extended to May 14, 2020 following concerns over qualification uncertainties for repayment of PPP loans that could not be certified necessary.

While the question asked in FAQ #31 was for businesses owned by large companies with adequate resources, the answer provided states “all borrowers,” leaving many small businesses questioning if their funding request would qualify. Borrowers were encouraged to consider the certification requirement that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant” carefully.  This was a response to some large companies (Ruth’s Chris, Shake Shack, etc.) applying for and receiving PPP Loans.

Adding to the concern is the fact that the SBA has announced that it plans to audit PPP loans over $2M following applications for forgiveness, and borrowers could face criminal penalties if their loan is found to be not “necessary.” Companies receiving PPP loans will also be part of a public record as well.  Thus, the need to consider the necessity of the PPP Loan has been heightened since the program was initiated.

Further guidance is expected from the SBA on how it will review the economic uncertainty certification, but in the meantime, businesses concerned about their loan meeting the “necessary” guidelines should prepare supporting documents such as:

• Current financial statements, cash flow projections, and forecasts for covering costs, especially payroll
• Proof of uncertainties in their market/industry as a result of COVID-19
• Analysis of customer spending trends, vendor costs, collectability of receivables, etc.

Consideration of the effects of the COVID-19 pandemic for each business should be made in relation to these factors for operational continuity and keeping people employed.

Borrowers who choose to repay the loan after considering their “necessity,” and do so by May 14, 2020,  receive some relief in the clarification that they will be eligible for the Employee Retention Credit, according to FAQ #45.

For assistance with preparing your supporting documentation for your PPP loan, contact us today.