In the last week, we have increasingly heard questions from members about required certifications for the PPP and as a related matter, what disclosures there will be about PPP participation.
As Congress and the Administration moved quickly to inject capital into the hands of American small businesses, they waived a number of the traditional requirements for securing loans from the SBA. In order to qualify for a PPP loan, the applicant had to certify in good faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” (Certification questions here).
Treasury has recently issued additional guidance on what determines “uncertainty” and “necessary” that has implications for PPP recipients.
Specifically, question #31 of Treasury’s FAQ, released on April 23, examines whether “businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?” Treasury’s answer states that “…all borrowers must assess their economic need for a PPP loan…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.” Note, the answer reaffirms that PPP rules do not require applicants to exhaust other credit markets. (Treasury FAQ here) The answer elaborates with an 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.”
In further guidance released on April 31, Treasury extends the analysis provided in Question #31 to businesses owned by private companies “with adequate sources of liquidity to support the business’s ongoing operations.” (Question #37)
As we all know by now, Treasury is updating its guidance on a regular basis. We will continue to update you as we learn more.
Financial Security Professionals and their clients should consider this information in two separate contexts: legal and reputational. It comes down to defending your decision that your PPP loan was economically necessary at the time of your application in a legal proceeding or in your local newspaper.
Recommendation: Document for yourself the specific considerations that led to your conclusion of economic necessity, especially as relates to maintaining your employees’ payroll – the key purpose of the program.
The decision to apply for, accept, and whether to return PPP funding needs to be made on a case by case basis by the applicant based on their comfort with their certification that it was economically necessary.
***On May 5, the Treasury extended the deadline from May 7 to May 14 for a PPP recipient to return the funds to the government without penalty***
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