Updates to the PPP Program:
Application Certification Concerns


Since the launch of the CARES Act and the new Paycheck Protection Program the Treasury Department has been met with much scrutiny for their lack of guidance. Despite many applicants thinking they met the program’s criteria for eligibility, this soon changed as there was public outcry surrounding businesses, with access to substantial capital, receiving funds. 
 
Subsequently, the Treasury Department had released guidance on, what is now coined, the “necessity certification” in the PPP loan application. This certification required an authorized representative of the applicant to certify that “current economic uncertainty makes this loan necessary to support the ongoing operations of the applicant.”   
 
The resulting circulation of this guidance via the media and internet created an atmosphere of extraordinary concern in the business community that owners and authorized representatives may be exposed to potential fines, penalties, legal action and professional embarrassment. 
 
This morning, the Treasury Department issued additional guidance which will put many of you at ease!
 
Background:
 
Prior Guidance:

  • The Treasury Department recently issued FAQ #31, which provides that all borrowers should “assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the PPP loan application.”  Their position is that businesses were expected to certify in good faith that their PPP loan request is necessary, 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. While many businesses have already submitted their applications and received funding, the Treasury Department seemed to be applying this new guidance retroactively by adding a safe harbor that any borrower who repays the loan in full by the extended deadline of May 14, 2020 would be deemed by the Treasury Department to have made the required certification in good faith.

  • Additionally, the Secretary of the Treasury, Steven Mnuchin, recently declared that any business who receives more than $2 million in PPP loan proceeds will be audited and businesses borrowing from the PPP could face potential criminal liability for improperly seeking funds.

Updated Guidance:

  • Just this morning, the Treasury Department issued FAQ #46. This outlines a safe harbor that can be applied to each PPP borrower: Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.”  As a result, if your PPP loan was below that threshold, you should no longer be concerned about any ramifications resulting from the good faith certification made on the PPP application.

  • For borrowers with loans greater than $2 million, your loan will be subject to SBA review for compliance with the PPP requirements. If the SBA determines that the you did not have an adequate basis to certify the economic need for the loan, they will seek repayment of the outstanding PPP loan balance and inform your lender that you are not eligible for loan forgiveness.  In this case, if the loan is repaid after notification from the SBA, they will not pursue “administrative enforcement or referrals to other agencies”.

Tomorrow, Thursday, May 14th, marks the deadline to return the funds, based on the original safe harbor. If you feel uncertainty regarding your ability to meet the eligibility for the program, you may still return the funds, however, there is likely, much less urgency to do so based on this morning’s Treasury guidance .
 

              
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