FAQ #46: Good Faith Certification and Good News!
To our valued clients and business partners:
Good afternoon! We are falling out of our normal communication e-mail schedule to let you know of a new development in the world of PPP.
We have received multiple calls over the last few weeks from clients who had received PPP funds, worrying about whether they “needed” the PPP funds. Due to some disturbing press coverage and correspondence from lenders, combined with some vague language regarding the borrower certification and the law itself, those receiving PPP funds were very nervous about getting a letter (or worse, a visit) from the SBA, who would determine whether they needed the funds, and make them defend that need.
The SBA has provided some clarification that might put businesses at ease, especially those receiving less than $2 Million in PPP funding.
The Small Business Administration (SBA) recently issued new guidance for PPP borrowers within their document of Frequently Asked Questions (FAQs). The complete FAQs guidance can be found here. The focus here is the response to question #46
The updated Q&A provides the much-needed clarity and piece of mind on question 46 that was missing from questions 31 and 39.
FAQ #46 addresses this question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?
The answer from the SBA is lengthy, but one excerpt is making many PPP recipients very happy:
SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: 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
• If you are a borrower that received a PPP loan of less than $2 million, you are automatically considered to have certified your need for the loan in good faith. You still need to keep good documentation for forgiveness on how the funds were spent.
• Borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances. Documentation becomes very important for PPP loans in excess of $2MM. In documenting your necessity for PPP funds, some focus areas you might consider highlighting:
o Keeping people employed that you would have otherwise laid off or furloughed. Keeping people on the payroll was the primary intent of the PPP.
o Cash Flow issues due to slow paying customers. Just because revenues have stayed consistent, doesn’t mean your customers are paying timely. And it’s very difficult to pay your employees with accounts receivable!!
o Supply chain breakdown causing increased materials costs and lower margins. Lower margins mean lower profit, and higher materials costs result in cash strain.
• If the SBA determines that a borrower lacked an adequate basis for the loan certification, SBA will seek repayment of the loan and will disallow forgiveness of the loan. However, if the borrower repays the loan after receiving notification from SBA, the SBA will not pursue enforcement or referrals to other agencies.
• Also, if for some reason you think your certification was faulty, and you need to give back the PPP funds you received, the SBA (FAQ #47) has pushed the safe harbor deadline to May 18th. It was previously set for today, May 14th.
If you should have any questions about PPP Loans, please reach out to your Bertz, Hess & Co. business advisor and we will be happy to help.
The Professional Service Team at Bertz, Hess & Co., LLP