A Critical Update Regarding the PPP Loans

PPP Loan borrowers were required to certify that “the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient.”

However, the following  FAQs from the SBA regarding PPP loans are potential causes for concern:

• Question 31: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?
• Question 39:  Will SBA review individual PPP loan files?

Regarding Question 31: the SBA guidance published on May 5, 2020 creates a “safe harbor” for borrowers, allowing them to return any funds by May 14, 2020 if they applied for a loan prior to April 24, 2020 and then repay said loan in full on or before May 14, 2020. Under these circumstances, the SBA will consider the Borrower’s initial certification to have been made in good faith. 

The SBA responded to Question 39 by stating on the record that they plan to examine all loans over $2 million.

It is our recommendation that all PPP Loan recipients immediately prepare a memorandum to file and assemble all documentation proving their need for assistance from the Paycheck Protect Program. This memo should note that the existing economic uncertainty necessitated the loan request in order to sustain normal business operations. 

The memo should also show that the PPP loan was used in order to keep personnel employed, indicate the potential detrimental impact of accessing or utilizing any other sources of liquidity, and illustrate how the economic uncertainty jeopardized future revenue and receivables.

Lastly, we recommend that all memorandum and documentation be reviewed by tax counsel, who can provide written statements regarding the legitimacy of your PPP loan application. 

Regardless of who you employ as tax counsel, we are happy to assist you with this process. Please contact us. We are here to help!

 

Urgent Alert Regarding the PPP Loans

Borrowers of the PPP loans had to certify that “the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient”.

Two recent FAQ’s relating to PPP from the SBA are concerning.

Question 31: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan? And,

Question 39:  Will SBA review individual PPP loan files?

In response to Question 39, SBA is on the record as planning to examine all loans in excess of $2 million.

Addressing issues raised by Question 31, the SBA guidance published on May 5, 2020 extends a “safe harbor” for Borrowers to return the funds by May 14, 2020 if they applied for a loan prior to April 24, 2020 and repaid the loan in full on or before May 14, 2020. In such a circumstance the SBA will deem the Borrower’s aforementioned certification to have been made in good faith.

We recommend that the PPP Loan recipients draft a memorandum to file and assemble documentation to support the reasons why it was necessary to file for the Paycheck Protection Program. The memo should address the current economic uncertainty made the loan request necessary to support the ongoing operations of the business. The memo should point out why the PPP loan was necessary to keep your employees employed, that accessing and using other sources of liquidity was uncertain and potentially detrimental, and that the current uncertainty placed future revenues and receivables in jeopardy.

In addition, we recommend that you have your memorandum and documentation reviewed by tax counsel, who should opine on the adequacy of it for the PPP purposes.

Nonetheless, we are happy to assist you with the process. Please contact us. We are here to help!