Alert: PPP Loan Updates from Your Part-Time Controller, LLC
May 15, 2020
Dear Clients and Friends of YPTC,
The Paycheck Protection Program (PPP) provides an opportunity for funding eight weeks of qualified payroll, rent, utilities, and mortgage interest for 501©3, 501©19, and faith-based organizations due to business disruption caused by the coronavirus pandemic through a low interest and, if certain criteria is met, a forgivable loan. New guidance and updates seem to be issued daily by the US Treasury and Small Business Administration for this program. Below are some important updates that you need to know and what you should do about them.
PPP Loans are Still Available
What you need to know:
As of May 14, the second round of PPP loans issued by banks was $194 billion, or about 63% of the available $310 billion. The second round of PPP started on April 27, so today, May 15, marks the third week of this available funding. There is funding still available!
What you need to do:
- If you are eligible and interested in this program- apply now! Here is the link to available lenders. Also, see our April 3, 2020 webinar with instructions on how to apply.
- If you have applied, but have not received confirmation from your lender and have not received an “E-Tran” number from the SBA, call and nudge your lender! Understand why there may be a hold-up with your loan and ensure that your lender has all of the proper documentation that is needed for the loan. Although there were lots of delays and problems in the first round of funding, media reports and our experience with clients indicate that the process is much quicker now.
- If you have applied and received your funding, start estimating your loan forgiveness. See our May 1, 2020 webinar on estimating PPP loan forgiveness.
PPP Loans Good Faith Certification Requirement on Economic Need, additional clarification
What you need to know:
In their most recently issued PPP Loans FAQ, the SBA clarified some confusion caused by FAQ #31 regarding the certification requirement in the borrower application that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, 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. At the time FAQ #31 was issued, the SBA provided a “safe harbor”, indicating that : Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. The safe harbor period has subsequently been extended twice and now expires on Monday, May 18.
On May 13, the SBA issued FAQ #46 clarifying that loan size is a key factor in determining whether organizations will be deemed to have met the good-faith requirement. In addition, organizations who do not meet the good-faith requirement will have the opportunity to return the money without penalty after the SBA notifies them to do so.
Organizations who received loans under $2 million: If your organization, together with any affiliates, received a PPP loan for less than $2 million, you are automatically deemed to have made the required certification concerning the necessity of the loan request in good faith.
Organizations who received loans of greater than $2 million: The SBA confirmed their earlier announcement that all PPP loans in excess of $2 million will be subject to an SBA audit. If during the course of that audit, the SBA determines that your organization lacked an adequate basis for requesting the loan, you will not be eligible for loan forgiveness and be required to repay the loan in full. If you do repay the loan after receiving notification from the SBA, you will not be subjected to any punitive actions from the SBA. There are no details yet on what the repayment timeline would be or how the audit itself will work.
What you need to do:
- Organizations should discuss the certification required in the PPP application with their attorney (as well as Board members) to understand their position on the language, and any risks the organization may have; and
- Organizations should document (with their attorneys and Board members as needed) contemporaneously (aka NOW) in a memo the reasons why they believe that the “Current economic uncertainty makes this loan request necessary to support ongoing operations of the Applicant” (i.e. the certification in question). Here is a great article that just came out on this exact topic by our friends at Wiss & Co. Organizations must maintain excellent records to support this decision (see the list in the article) and should provide scenarios to support “what if” in best, mid, and worst case scenarios. (See our April 17, 2020 webinar on Scenario Planning in a Crisis for more information on scenario planning).
- See the SBA PPP Loan FAQ here.
PPP Loan Forgiveness Guidance
What you need to know:
We continue to wait for the promised PPP loan forgiveness guidance from the SBA to clarify many unanswered questions regarding this calculation. The SBA did clarify one question regarding loan forgiveness in FAQ #46: If a borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer, the PPP loan forgiveness amount will NOT be reduced if the borrower made a good faith, written offer of rehire, and the employee’s rejection of that offer is documented by the borrower.
What you need to do:
- If you have applied and received your PPP loan, start estimating your loan forgiveness. See our May 1, 2020 webinar on estimating PPP loan forgiveness.
- Be on the lookout for additional PPP loan forgiveness guidance and an upcoming YPTC webinar on this topic!
Have an excellent weekend!
