Yesterday the Treasury issued both a new FAQ and an additional interim final rule on the popular PPP program. The FAQ and interim final rule target outstanding issues of concern to many small businesses.
PPP Certification Update and Safe Harbors
The Small Business Administration’s new FAQ (FAQ #46) provides clarification on the much-discussed good faith certification which requires PPP applicants to certify that “the current economic uncertainty makes [the] loan request necessary to support the ongoing operations of the applicant.” The FAQ states that loans with a principal balance of less than $2 million dollars will automatically be deemed to have made this certification in good faith and, absent unusual circumstances, will not be subject to routine review.
Loans over $2 million dollars will remain subject to review by the SBA. If the SBA determines that the borrower did not have an adequate basis to meet the standards, the borrower will be ineligible for loan forgiveness and will be required to repay the loan. Borrowers who do not repay the loan after notification from the SBA would at risk for penalties and further proceedings. Borrowers with loans over $2 million dollars should maintain documentation illustrating the need for the PPP loan at the time of application in anticipation of SBA review. Documentation should include a narrative description of the uncertainties caused by the COVID crisis and how those uncertainties could affect the borrower’s business, such as possible disruption to supply chain, customers, and workforce. Borrowers should also explain the potential business need to reserve for such contingencies from any untapped credit facilities and available cash.
Borrowers who are uncertain of the adequacy of their basis for the certification regarding the need for the loan, and anticipate being able to repay the loan upon demand, may now be more comfortable keeping the funds past today’s May 14th “safe harbor” return date.
Increases to Some Existing PPP Loans
The Treasury also released an interim final rule permitting increases of existing PPP loans for partnerships (including LLC’s that are taxed as partnerships) to include compensation of partners (or members) active in the business in the loan amount calculation, if such amounts were not included in the partnership’s initial PPP application. Guidance on calculations and loan eligibility can be found here. The interim final rule also allows seasonal employers who received PPP funding prior to the release of the seasonal employer alternative loan amount calculation guidance to receive stepped up funding. The alternative seasonal employer guidance can be found here.
We would be pleased to assist in analyzing the impact of this guidance on your business. Should you have any questions, please do not hesitate to contact any member of the Carmody team.
Thomas R. Candrick, Jr.
(203) 784-3103; email@example.com
(203) 575-2621; firstname.lastname@example.org
Matthew H. Gaul
(203) 784-3106; email@example.com
Joseph L. Kinsella
(203) 575-2645; firstname.lastname@example.org
Mark J. Malaspina
(203) 575-2625; email@example.com
Ann H. Zucker
(203) 252-2652; firstname.lastname@example.org
Wesley D. Cain
(203) 784-3105; email@example.com
Stephanie E. Cummings
(203) 575-2649; firstname.lastname@example.org
Kevin G. Palumberi
(203) 252-2692; email@example.com
Holly G. Wheeler
(203) 784-3158; firstname.lastname@example.org