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Paycheck Protection Program (PPP): What You Need to Do Before May 18th

May 14, 2020

If you’re rethinking your business’s eligibility for a paycheck protection program (PPP) loan, you’ll want to take action to repay the funds before May 18th.

Editor's Note: This blog has been updated as of May 14, 2020.

As we have covered in many recent blogs, the Paycheck Protection Program (PPP), part of the Coronavirus, Aid, Relief and Economic Security (CARES) Act has provided nearly $660 billion to small businesses impacted by the COVID-19 pandemic….but since the program began, clarifications in the form of FAQs have been issued by the SBA regarding the program. Here, we highlight some recent FAQs, and what action you may need to take before May 18, 2020 (As of May 14, 2020 this has been extended from May 14th to May 18th).

FAQs #31 and #37

FAQs #31 and #37 both address the question of whether a public or privately held company with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan.

Both FAQs state that “Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “current 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.”

In other words, if a company (or non-profit) has adequate sources of liquidity (cash reserves, investments, etc.) it may not qualify for a PPP loan.

May 14th Deadline

FAQs and #31 and #37 note that businesses that applied for a PPP loan prior to this guidance who are reconsidering their eligibility for the PPP have until May 18, 2020 to repay the loan. If the loan is repaid prior to May 18, 2020, the SBA will have deemed the borrower to have made the required certification in good faith.

If you are concerned that your business does not meet the qualifications, here are some considerations for you:

  • Document everything! Make sure you keep a record of internal discussions about the PPP loan, its necessity for your business to support ongoing operations, and other sources of funding you considered before applying for the PPP.
  • Stay up to date on PPP information. The PPP FAQs are updated frequently and guidelines continue to be developed.
  • Remember that only a maximum of 25% of the PPP can be applied to other expenses besides payroll.
  • Track SBA approved expenses - Opening a specific bank account for the use of PPP funds can make this easier, but is not necessary.
  • Consider the impact of furlough and layoff decisions on potential loan forgiveness.
  • Prepare a backup plan in the event that your loan is not fully forgiven

If you feel that your need for the PPP loan might not rise to the level of “necessary” it’s wise to return the funds in full by May 18, 2020.

SBA Oversight

As discussed in my earlier blog, it is important to document why the organization needs a PPP loan. That documentation is now more important than ever as FAQ #37 notes that all loans in excess of $2 million will be reviewed by the SBA before allowing forgiveness and that loans less than $2 million will be reviewed as deemed appropriate by the SBA. Part of this review will be determining whether or not the borrower “needed” the loan.

Navigating through all of the information and programs available to impacted businesses may be overwhelming. KLR advisors are available to assist you navigate the best path forward during this unprecedented crisis. With a completely remote workforce our advisors are always available.

Questions? Contact us.

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