The Covid-19 pandemic has affected many organizations, resulting in uncertainty, anxiety and difficult business decisions. For those businesses affected, the Federal PPP loan has been a lifeline. However, with all of the PPP loan's benefits, it has come with its own issues of confusion.
While the vast majority of organizations qualified for the loan, some borrowers may be unsure due to the loan's complex criteria. The SBA recently provided additional commentary relating to the certification of need included in the PPP loan application. The commentary stated that:
- 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, 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.
- For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.
Based on this additional guidance, PPP borrowers should document their evaluation process used in making the certification of eligibility for their PPP loan. Be sure to include all pertinent information about your organization, how it operates and how it has been affected.
If by chance a borrower determines that its original certification could not be made in good faith, the funds can be repaid by May 14, 2020 to meet the SBA’s safe harbor. Borrowers that use this safe harbor will be deemed by the SBA to have made their original certification in good faith.
Having documentation in file will be very helpful if a company is later asked to provide support for its certification of need.
If you have questions or would like to further discuss, please call Perry Barnett, CPA, at (770) 287-7800 or email firstname.lastname@example.org.