Recently, we sent an update regarding eligibility for Paycheck Protection Program loans. That information left businesses of all sizes uncertain about their eligibility for the program and whether they should be returning PPP funds that were received. On May 13, 2020, the United States Treasury released further guidance on eligibility.
Specifically, there is now a safe harbor for those entities that received loans of less than $2 million which states they “will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” This is good news for those with loans of less than $2 million as they are deemed to be eligible without considering liquidity and other sources of capital. The guidance further states the “SBA (Small Business Administration) has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees.”
The guidance further states that for borrowers with loans greater than $2 million they “may still have an adequate basis for making the required good-faith certification, based on their individual circumstances.” The SBA previously announced that all PPP loans in excess of $2 million would be subject to audit and/or review. The recent guidance now adds “if the SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request.” Those with loans in excess of $2 million who are not returning the funds should have adequate documentation as to the necessity of the loan and we recommend working with your CPA advisor to help determine the sufficiency of the documentation.
This is good news all around for borrowers under the PPP. We are still waiting for guidance on the forgiveness and do not have any indication from SBA as to when such guidance may be released. As soon as it is, we will get that information out to you. In the meantime, we are always here to help with any questions or concerns you have.
Shelly Spata joined the firm in 1998, and her name went on the door in 1999. She now serves as the Managing Partner of the firm. "As a business owner myself, I understand the complexities and challenges business owners face, and I strive to add value by helping clients understand their financial statements, manage tax consequences, and clearly see the financial and tax ramifications — both positive and negative — of decisions they make," she explains. "Without good financial information, it’s like driving a car blind, but with good information, clients are able to maximize profits."