New SBA Guidance on PPP Loan Eligibility and Safe Harbor Extended to May 18

UPDATED: May 14, 2020 – An additional extension has been granted until May 18 for companies to return their PPP loan if there is any question that the certification was made in “good faith.”  The article below has been updated to reflect these changes.

On May 5th, the Treasury announced that it will automatically extend the safe harbor period to return PPP loans/withdraw applications that do not meet the economic need certification from May 7 to May 18, 2020. They also announced that the SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020

New SBA Guidance on PPP Loan Eligibility

As we reported last Friday, May 1, the Small Business Administration (SBA) issued new guidance for PPP loans that will require companies to reevaluate their eligibility.

The SBA’s original $349 billion Paycheck Protection Program contained a requirement that businesses certify that:

• “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
• “The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as charges for fraud.”

When large publicly traded companies and other large institutions were found to receive PPP loans, while small businesses were shut out, public opinion changed, and the SBA has responded with some important new developments.

The new guidance is more detailed and requires the borrower to evaluate access to sources of liquidity (including a line of credit) sufficient to support its ongoing operations.  The guidance states:

• “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.”
• The guidance goes on to state “Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7*, 2020 will be deemed by SBA to have made the required certification in good faith.”

*now extended to May 14

We know this is a big difference from the original language and many of our clients are looking for guidance and reassurance.  Unfortunately at this time, clear guidance is lacking with how to address these issues with any certainty.

PPP Loans Over $2 million to Be Audited

Also, Friday, U.S. Treasury Secretary Mnuchin and SBA Administrator Jovita Carranza issued a joint statement that PPP loans in excess of $2 million will need to be audited prior to forgiveness. The statement read:

“To further ensure PPP loans are limited to eligible borrowers, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application. Regulatory guidance implementing this procedure will be forthcoming.”

What does this mean for PPP Borrowers? 

Companies that were awarded a PPP loan prior to this guidance will need to reevaluate their eligibility and possibly return funds by May 18th.

ALL CPAs also advises clients to document their rationale for the PPP loan application based upon facts and circumstances at the time of the application as well as your discovery of subsequent information in line with the most recent guidance. If you are audited by SBA, it will likely be very important to establish that you considered each of the determining factors in good faith.

Remember we are here to help. If you have uncertainty about your PPP loan, please contact your ALL tax advisor or call us at 617-738-5200. Also, please be sure to stay updated by visiting our COVID-19 resource center. Our thoughts continue to stay with you during these trying times.