Guidance around the Small Business Administration’s Paycheck Protection Program continues to evolve, particularly as details emerged that the first recipients of the partially forgivable loans went to larger organizations. The Treasury released an updated Q&A document in May, announced it would be reviewing all large loans and spot-checking the smaller distributions, and provided a deadline for organizations to return any PPP funds for which the organization did not qualify.
As a sign of just how quickly the guidance around the PPP changes, the deadline for the PPP loan return was pushed to May 14 from its original deadline of May 7.
The scrutiny and additional guidance released about the program make it essential that loan recipients and organizations with pending applications understand their compliance obligations. Our team is here to help clear up some of the uncertainty around what loan recipients may be asked to provide to take advantage of the PPP benefits. The following recaps some of the common questions we are hearing and our team’s responses.
What do we make of the new guidance around the certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”?
The economic uncertainty qualification is a representation and warranty the borrower must make. Based on the recent headlines on large organizations getting the loans, both the banks and the SBA will be vigilant on this point. Keep in mind that it’s in the lender’s best interest to be strict about the economic uncertainty requirement, as banks have SBA licensee exposure, and the SBA has threatened to raise the audit frequency of these loans higher.
What happens if we apply and receive PPP funds, but now that the SBA has provided additional guidance, we are second-guessing accepting the funds?
Whether you qualify for the funds in light of the additional guidance provided by SBA will be up to your organization. Qualification for the PPP is a good faith certification by the borrower, but if you are truly in doubt, you will have through May 14 to return PPP funds.
Can we feel comfortable with the Economic Necessity attestation in our application even with an available line of credit?
The CARES act specifically waived the “no credit otherwise obtainable” certification for receiving a PPP loan. There’s no further round of PPPs coming to present borrowers, and the Economic Necessity attestation is a representation and warranty of the borrower.
If we manage to keep sales almost as normal and maybe better, and we don't furlough any of our employees, will we be in trouble for accepting the PPP loan?
No – it’s for payroll and other essential expenses, and you couldn’t determine if things would be normal when you applied for the loan.
How should we weigh the cost/benefits of utilizing the funds in a forgivable manner versus holding the funds past the 8-week mark and turning them into a low-interest loan?
The use of the PPP as a low interest general loan is not allowed. Attestations are required as to the use of the proceeds for payroll and other permitted expenses. The purpose of the loan is mainly for payroll. If it can’t be justified by payroll, it should be returned to the lender by May 14.
Calculating PPP Forgiveness
Are we using the accrual basis or cash basis payment date for the date used during the forgiveness period for rent and utilities?
It’s all cash-based – not accruals for expenses or payroll.
How should we interpret the ability to ignore the full-time equivalent (FTE) comparative calculations for loan forgiveness if we bring back FTE count to pre-COVID-19 levels by June 30? Bring back to pre-COVID-19 levels for that day? 2 days? A month? A cup of coffee?
Forgiveness is based on the average number of FTEs during the eight- week period after the loan origination but before June 30, not based on FTEs present on June 30.
Is there any definitive guidance on whether the salary cap is based on a weekly or pay period basis? Do we have to spread a potential increase of salaries over the 8-week period?
The salary cap under the PPP is $100,000 per annum. It doesn’t matter how frequently the employees are paid.
Our team will continue to provide updates as new details on the PPP and other SBA loan programs emerge. For more information on PPP loans, please contact us.
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