Important Update on PPP Loans
SBA Issues Guidance on Good-Faith Standard for Loan Applicants
All recipients of a Paycheck Protection Program (PPP) loan were required to certify in their applications that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." Borrowers were required to make that certification in good faith in light of their current business activity and their ability to operate with financing from other sources in a manner not significantly detrimental to the business.
Some large publicly-traded companies recently made news by returning their multi-million dollar PPP loan proceeds after being accused of having made their certification in bad faith.
In an effort to force the hand of other well-heeled companies that had received PPP loans, the Small Business Administration (SBA) set a safe-harbor deadline of May 14, 2020, for recipients of PPP loans to return the proceeds if they could not in good faith certify that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant."
This was not a bright-line test and some pharmacy owners have been concerned over how the good-faith standard applies to them.
However, nearly all independent pharmacies should comfortably meet the good-faith standard due to the significant challenges they face from reduced script counts, major prescribers shutting down their practices, staffing issues, supply shortages and operating in closed-door mode while continuing to serve their patients throughout the current crisis.
Thankfully, SBA yesterday (May 13) issued a clarification establishing a bright-line test. A business that has received received less than $2 million in PPP loan proceeds is automatically "deemed to have made the required certification concerning the necessity of the loan request in good faith." (Please refer to question #46 in
the SBA's Q&As about PPP Loans
Therefore, if you have received a PPP loan for an amount less than the $2 million threshold, you will not have to return the proceeds by May 14, 2020.
We are watching guidance on the PPP loan program closely. There are still many unanswered questions about how to obtain forgiveness of the loans.
We will continue to provide updates as additional guidance is released and the picture becomes clearer. As always, please consult with your own legal counsel and/or CPA on your pharmacy's particular situation.