The Payroll Protection Program (PPP) application requires an applicant certify, on penalty of fines or imprisonment, that the loan is necessary to support its ongoing operations.
Sean Bryan’s column—entitled “Is Your Payroll Protection Program Loan Really “Necessary
”?"—addresses the Payroll Protection Program application and certification.
Presumably, as a result of disclosures that several large businesses received PPP loans, the SBA provided additional guidance, through additions to its FAQ page on April 23 and a new Interim Rule published on April 24, emphasizing that the certification as to necessity must be made in good faith, taking into account the applicant’s current business activity and its ability to access other sources of liquidity sufficient to support the applicant’s ongoing operations in a manner not significantly detrimental to its business. With this fuzziness, it should be acknowledged that the CARES Act waived certain existing requirements that an applicant be unable to obtain credit elsewhere and that the new SBA guidance expressly does not prohibit a publicly-traded company with access to other funds from applying for a PPP loan (it merely questions whether the certification as to necessity can be made in good faith). Above all, the intent is to provide funds to keep employees on the payroll.
In connection with this “clarification,” the SBA created a safe harbor for PPP loans that were applied for before April 23. A recipient who is concerned about a “misunderstanding or misapplication” of the required certification may repay the loan in full on or before May 7 and will be deemed by the SBA to have made the original certification in good faith.
Businesses concerned about this new guidance should document the necessity of the PPP loan, including plans regarding employees if a PPP loan were not applied for, or were to be repaid by May 7. Given the almost-daily additional guidance provided by the Treasury Department and SBA, it is possible that further clarification on this matter will be issued before May 7, 2020.
For further information on the Payroll Protection Program, click on the link below.https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses