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Important Guidance & Requirements on Paycheck Protection Program

[ Updated May 14, 2020 | 9:12am ]

There has been some clarity issued by the Small Business Administration (SBA) concerning the Paycheck Protection Program (PPP) around the requirement of borrowers to demonstrate need. It is important to remind borrowers that it is borrowers’ sole responsibility to determine and certify their eligibility to receive a loan under PPP.

The Small Business Administration (SBA) issued guidance late last week reminding larger companies with adequate sources of liquidity to support ongoing operations of their responsibility to certify their eligibility for Paycheck Protection Program (PPP) loans if they apply or have applied.  This guidance stated that a public company with “substantial market value and access to capital markets” should be prepared to demonstrate to the SBA the basis for its economic need certification. The guidance does not further define “substantial market value.”

SBA is extending the repayment date for this safe harbor to May 18, 2020. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor. SBA intends to provide additional guidance (View Here) on how it will review the certification prior to May 18, 2020.

According to the guidance, PPP borrowers must make the good-faith certification while taking into account their current business activity and ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.  Lenders may rely on a borrower’s certification regarding the necessity of the loan request, according to the guidance.

It is our understanding the following items may meet the SBA standard for need; revenue drops you are currently experiencing or expect to experience; change in your cost structure; projections if your business would have an outbreak; or your prospect or bid pipeline. While specific guidance to the many unique situations our clients encounter isn’t available yet, there are some smart moves you can make now.

  • Create a copy of the invoices, cancelled check or electronic funds transfer for all eligible expenses
  • Create a spreadsheet or tracking mechanism to track how your using the funds in an obvious manner.
  • Possibly open a separate bank account to deposit the PPP funds into to allow for easy tracking.

Given the revised guidance issued by the SBA and the pending May 18, 2020 deadline for returning loan proceeds, we encourage you, your organization’s management, and board of directors to carefully review your company’s financial situation and reconsider the relief you may have already received with a PPP loan if you believe it to be necessary after that review. Ultimately, should you have questions as to your organization’s eligibility for this loan, we strongly encourage you to seek legal counsel as there is potential for legal and regulatory risk.

If you have any questions, please consult your YHB advisor.

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