Updated May 14, 2020
New communications from the Small Business Administration and the Treasury indicate a need for companies who received a Payroll Protection Plan loan and those who are applying for the funds to carefully assess their hardship statuses to determine whether or not the funds are essential to maintain functionality through the COVID-19 pandemic shutdowns.
In response to the criticism and widespread public concern over big chains and public companies receiving funds through the Paycheck Protection Program, U.S. Treasury Secretary Steven Mnuchin recently gave notice that companies receiving a loan exceeding $2 million will be audited before loan forgiveness can be granted.
Likewise, the Small Business Administration recently released updates to their FAQ communication that indicate a need for applicants to carefully assess whether or not they are capable of claiming economic hardship. In particular, FAQ 31 clarifies the meaning behind the hardship certification applicants must sign in order to receive funds.
Those who received PPP loan funds prior to this update must consider whether or not the SBA will deem their circumstances as meeting the hardship certification. They must be able to substantiate their determination of need based on current economic uncertainty.
Based on Mnuchin’s statement and the SBA updates, companies who have received PPP funds or who are applying should note the following:
- Borrowers should carefully review the hardship standard and assess their economic need. Documentation validating the assessed need is required, so businesses should gather materials now to back their hardship claim.
- Applicants do not need to document that they cannot obtain credit from other sources, but they do need to certify in “good faith” that the loan is necessary.
- Small businesses, private and public alike, that have adequate sources of liquidity and access to capital markets are unlikely to qualify for PPP funds because it will be difficult to make a good faith hardship certification.
- It is not the lender’s responsibility to investigate the veracity of the borrower’s good faith certification, and recipients of the funds will need to be able to supply the SBA documentation supporting the certification upon request.
- Those who applied for PPP loan funds prior to the April 23 FAQ updates may pay the loan back in full by May 7, 2020. If they do so, the SBA will consider the company to have made certification in good faith. As of May 5, SBA FAQ 43 is extending the repayment for this safe harbor to May 14, 2020. In FAQ 47 issued on May 13, 2020, the SBA further extended the safe harbor for returning PPP Loans from May 14 to May 18.
- Hedge funds and private-equity firms are ineligible to receive PPP loans.
The SBA and the Treasury have issued these updates in an attempt to assure funds are available to the many small businesses in need due to the impacts of COVID-19. Taking notice of these updates can help minimize legal risks concerning the hardship certification and bring clarity to potential applicants in determining whether or not they qualify for the loan. Optimistically, this will slow the depletion of funds available to small businesses in need and allow those who are truly in need access to resources.
We will continue to update you as information on economic responses to COVID-19 comes in. If you have any questions concerning your business or nonprofit’s eligibility for the PPP loan, contact a Hantzmon Wiebel team member. We are here for all your accounting and advisory needs.
© Copyright 2020 Thomson Reuters.
Disclaimer of Liability Our firm provides the information in this article for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this blog are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.